India office trends to watch for in 2016

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Colliers International launches the office market overview report, 2016 carrying key trends on the office market, apart from city level insights from Delhi, Gurgaon, Noida, Mumbai, Kolkata, Chennai, Pune.
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  • 1. Trends to watch for in 2016
  • 2. Table of Contents Infographics 2015 Actual & 2016 Forecast 4 India - Office market performance 2015 & trends to watch for in 2016 Most cities in ‘sweet spot’ in terms of office supply and demand fundamentals, indicating strong outlook 6 Mumbai - Shows strong demand Office absorption doubles in 2015, over 6.5 million sq ft recorded 8 Delhi - Office market takes a step back in 2015 Absorption plunged down by 25% YoY to 0.89 million sq ft 10 Gurgaron - 2015, the best for office market in last 5 years With 5.59 million sq ft, office absorption reached to the levels of 2011 12 NOIDA - Office market recovered City recorded, 45% YoY increase in demand 14 Chennai - Office market rebounds Technology sector drives the demand; absorption up by 25%YoY 16 Bengaluru - Continues to top in office market Office market outperform with absorption over 13 million sq ft 18 Kolkata - Occupiers remained cautious Office absorption down by 60% YoY in 2015, but 2016 looks positive 20 Pune - Upholds office absorption, crosses 5 million sq ft IT/ITeS remained as the prime driver with 74% of the total absorption 22 3 Research & Forecast Report | January 2016 | <<India>> | Colliers International
  • 3. New Delhi /NCR - 40.2 million sq ft was absorbed in 2015 in major metros - Bengaluru tops the chart with 33% share followed by Delhi NCR with 23% - 58% of the total absorption was contributed by IT/ITeS Sector followed by BFSI 19% 13.4 6.6 9.1 12.0 6.0 8.1 5.0 5.0 5.1 5.0 2015 2016 Forecast (In mn sq ft) 1.0 1.1 ABSORPTION Bengaluru Mumbai Pune Chennai Kolkata India Office Mumbai, Delhi-NCR, Bengaluru, Chennai, Kolkata & Pune NEW SUPPLY - 2015 & PIPELINE 2016 IABMUM RCNIHLED IANNEHC ATAKLOK PUNE URULAGNEB 2015 2016 Forecast (in million sq ft) VACANCY LEVELS RCNIHLED 3.36 5.48 12.85 8.75 7.87 11.74 2.51 3.05 2.18 1.74 IABMUM 2015 2016 Forecast ATAKLOK24.5% 24.0% URULAGNEB 13.0% 12.0% 12.0% 13.0% IANNEHC12.5% 14.00 PUNE19.5% 20.5% 3.50 3.50 21.0% 21.0%
  • 4. 2015 actual | 2016 forecast INDIA OFFICE TRENDS 3TO WATCH IN 2016 MAJOR OFFICE SALE TRANSACTIONS * ~ ` 1,060 Cr SP Infocity, Chennai Buyer: CPPIB- Shapoorji Pallonji Seller: Faery Estates The Ruby, Mumbai Buyer: Axis Bank Seller: Ruby Group ~ ` 1,340 Cr ~ ` 1,479 Cr ~ ` 850 Cr ~ ` 320 Cr Occupiers across all sectors will continue to become more space efficient, doing more with less space as their leases come up for renewal. * Secondary sources like media publications 1 Grade A office space, rents are expected to strengthen for quality office space in almost all the micro markets. 2 3 BPTP Crest, Gurgaon Buyer: RMZ Corp Seller: BPTP 247 Park, Mumbai Buyer: Blackstone Seller: HCC Real Estate GRADE - A AVERAGE RENTAL GROWTH IABMUM RCNIHLED IANNEHC ATAKLOK PUNE URULAGNEB 2015 2016 Forecast TOP 10 LEASE TRANSACTIONS IN 2015 Wells Fargo Embassy Tech Village 860,000 Bengaluru Shell RMZ Eco World 788,000 Bengaluru Snapdeal ASF Tower and Center 500,000 Gurgaon Amazon Constellation Business Park 500,000 Bengaluru IBM Bhartiya City 500,000 Bengaluru Accenture Shriram Gateway SEZ 393,000 Chennai Siemens Panchshil Business Park 342,080 Pune Accenture Divyashree Point 325,000 Chennai Client Building Name Area (In sq ft) City 1.0% 0.9% 2.6% 2.5% 3.2% 1.9% Godrej BKC, Mumbai Buyer: Abbott India Seller: Godrej Properties 5.9% 6.9% 6.2% -4.7% 4.7% Abbott Godrej BKC 400,000 Mumbai One Indiabulls Park 400,000 ChennaiYes Bank Government support with major policy level changes, such as Real Estate Regulation Bill, Land Bill, GST Bill are expected to favour real estate sector. 5 Research & Forecast Report | January 2016 | <<India>> | Colliers International
  • 5. Return on Alternative Investments Economic Barometer Note: 1 Estimates as per International Monetary Fund 2 Wholesale Price Index (WPI) Till Nov 2015 3 SBI interest rate < INR 1 crore Term Deposits for≤ 1 Year Exchange Rates 2014 2015 INR - USD 61.85 66.37 INR - EURO 77.41 72.84 Parameters 2014 2015 YoY CHANGE Gold 26,507 25,206 -4.91% Silver 35,999 33,215 -7.73% Equity (BSE Sensex) 27,506 26,079 -5.19% Realty Index 1,502 1,327 -11.68% Research & Forecast Report India | Office January 2016 India office market performance 2015 & trends to watch for in 2016 Most cities in ‘sweet spot’ in terms of office supply and demand fundamentals, indicating strong outlook 2015 was another solid year for the Indian office market, with improvements in both demand and supply. The office market got its much needed support at macro economy level. The economy expanded to 7.40% in 2015 underpinned by low inflation, low interest rates and growth in investments. We have recorded about 40.21 million sq ft office space lease transactions excluding pre-commitment of another 3 million sq ft in India’s eight major cities. This was about 15% more than the absorption in 2014. New construction continued to trend upwards, reaching nearly 32 million sq ft in 2015, up from 24 million sq ft in 2014. The ratio of absorption to new supply, one of the key metrics we use to gauge the supply-demand balance of the Commercial Real Estate (CRE) markets, indicates that office users absorbed more amount of space, than what was added to new supply indicating dropping vacancy rates. Bengaluru, with about 13.43 million sq ft of office absorption and 12.85 million sq ft of new construction continued to hold its number one position across cities. The city shared about 33% and 41% respectively, in total absorption and new supply among eight major cities in India this year. Mumbai and NCR office transaction volume reached a post-recession high of 6.57 and 9.10 million sq ft in 2015 witnessing an increase of 111% and 18% from last year, respectively. Pune and Kolkata shared 12% and 2% in the total office absorption. The occupier group made their long-pending decisions and India saw some big ticket office deals in 2015, such as ‘Wells Indicators 2014 2015 Gross Domestic Product 6.60% 7.40% Business Confidence Index 49.90% 56.40% Repo Rate 8.00% 6.75% Reverse Repo Rate 7.00% 5.75% Cash Reserve Ratio 4.00% 4.00% Inflation (WPI) 2 0.00% -2.15% Prime Lending Rate 10.00% - 10.25% 9.70% - 10.00% Deposit Rate 3 8.00% - 9.00% 7.75% - 8.00% Source: Government of India, Colliers International India Research
  • 6. FDI in Real Estate 5,000 10,000 15,000 20,000 25,000 30,000 0 2010-11 2011-12 2012-13 2013-14 2014-15 Apr-Sep15 Gross Domestic Product at Factor Cost 0% 2% 4% 6% 8% 10% 12% Apr-Jun10 Oct-Dec10 Apr-Jun11 Apr-Jun12 Apr-Jun13 Apr-Jun15 Apr-Jun14 Oct-Dec11 Oct-Dec12 Oct-Dec13 Oct-Dec15 Oct-Dec14 Business Confidence Index 0 10 20 30 40 50 60 70 80 90 100 Apr10 Apr12 Apr11 Apr13 Apr14 Apr15 Oct10 Oct12 Oct11 Oct13 Oct14 Oct15 IndexINRCrore 7 Research & Forecast Report | January 2016 | <<India>> | Colliers International Fargo’ took 0.8million sq ft in Bengaluru, ‘Snapdeal’ took 0.5 million sq ft in Gurgaon, ‘Abbott’ took 0.4 million sq ft in Mumbai, ‘Yes Bank’ took 0.4 million sq ft in Chennai and ‘Siemens’ took 0.3 million sq ft in Pune. The demand was primarily driven by technology sector while e-commerce emerged as a significant contributor of this demand within this sector. Across cities, Grade A office space in suburban markets remained in preference for technology occupiers who were the top contributors to the office demand. The real estate sentiments further boosted due to some of the key announcements such as rationalisation of the capital gains tax for REITs and InvITs, subject to payment of Securities Transaction Tax (STT), relaxation in FDI norms for real estate sector, inclusion of CRE in the ambit of Real Estate Regulatory Authority (RERA) bill etc. Private equity activity in the commercial sector continued to gain momentum. Institutional investors, both domestic and overseas, are demonstrating an increased appetite and willingness to engage. The commercial market witnessed several leased asset sales such as Abbott India Ltd bought Godrej BKC, Mumbai for INR 1,479 crore, CPPIB-Shapoorji Pallonji bought S P Infocity, Chennai for INR 1,340 crore, Blackstone invested INR 1,060 crore to buy 247 Park from HCC Real Estate Ltd. in Mumbai. Trends to watch for in 2016 Outlook for office market looks strong, as currently, most of the Indian markets are in the “sweet spot” in terms of supply-and-demand fundamentals. In 2015, most of the cities witnessed low vacancy, a steady increase in development activity and less speculative development. The combination of positive economy, stronger job growth prospect and limited and targeted construction activity bodes well for the market in 2016. Occupiers across all sectors will continue to become more space efficient, doing more with less space as their leases come up for renewal. But as hiring activity is expected to increase further, firms will need more space to house additional workers. Looking at the RFPs floating in the market, the office real estate market in 2016 is expected to be at par with 2015 in terms of office absorption though capital and rental values are likely to remain stable. Nevertheless, for Grade A office space, rents are expected to strengthen for quality office space in almost all the micro markets. We expect that private enterprise will play a major role in the industrial and warehousing sector, given the government’s push for “Make in India” and the rise of e-tailing. Also, if REITs take off this year, the office market will see more overseas investment in 2016 with big capital chasing limited premium office developments. Source: Government of India, Colliers International India Research Source: Government of India, Colliers International India Research Source: Government of India, Colliers International India Research
  • 7. Mumbai shows strong demand Office absorption doubles in 2015, over 6.5 million sq ft recorded 2015 was a solid year for the Mumbai office market with absorption totaling 6.57 million sq ft; this was more than double of last year’s absorption of 3.12 million sq ft. Apart from this, IT/ITeS giant TCS has pre-committed 2 million sq ft in Hiranandani Estate, Thane, which is expected to materalise by 3Q 2018. Sector wise, BFSI commanded the absorption with about 34% share, followed by IT/ITeS 28% and Pharma 15%. Western Suburbs micro market including, Andheri (E), Malad, Goregaon (E), Jogeshwari (E) outperformed with more than 32% of the total absorption, followed by BKC (Bandra- Kurla-Complex) 22%, Navi Mumbai 16%, Central Suburbs & Central Mumbai 12% each, Thane 5% and CBD 2%. This year, we recorded a number of outright transactions in office market including, purchase of about 400,000 sq ft office space in, ‘Godrej BKC’, by Abbott India; 200,000 sq ft by Axis Bank in ‘The Ruby’, developed by Ruby Group at Dadar; and 100,000 sq ft each by SBI and Edelweiss in L&T Sea Woods and Kohinoor City located at Navi Mumbai and Kurla, respectively. Equivalent to our last year’s forecast, more than 3.36 million sq ft of new supply was added in 2015. Till 4Q 2015, approximately 7.6 million sq ft of vacant Grade A office space was available for lease or sale in the Mumbai office market. Most of this supply was situated in Andheri (E) and Thane/ LBS Marg 19% each, Worli/ Prabhadevi 13%, Navi Mumbai 12%, BKC & Powai 9% each, Malad 7%, Goregaon 5%, Lower Parel 3% and CBD & Kalina 2% each. Due to robust absorption and limited new supply, the overall vacancy levels fell in 2015 from 14% in 2014 to 13% in 2015. Office rents witnessed an average increase of about 1% YoY across the micro-markets. A few locations, such as CBD, Andheri (E), Navi Mumbai and Powai recorded an increase in *Indicative Grade A rents in INR per sq ft per month **Nariman Point, Ballard Estate & Fort MICRO MARKETS RENTAL VALUE* % CHANGE QoQ YoY CBD** 200 - 250 0% 5% Worli/Prabhadevi 180 - 210 0% -5% Lower Parel 145 - 190 0% 0% BKC 225 - 320 0% 0% Kalina 150 - 200 0% 0% Goregaon / JVLR 100 - 110 0% 0% Andheri East 90 - 130 0% 5% Malad 80 – 100 0% 0% Powai 120 - 130 0% 4% Navi Mumbai 70 - 100 0% 6% Thane / LBS 60 - 75 0% 0% Research & Forecast Report Mumbai | Office January 2016 INDICATORS 2014 2015 2016F 2017F Vacancy Absorption Construction Rental Value Capital Value Rental Values City Office Barometer Source: Colliers International India Research Source: Colliers International India Research
  • 8. 9 Research & Forecast Report | January 2016 | <<India>> | Colliers International Key under construction projects the range of 4 to 6%, while Worli/ Prabhadevi witnessed an annual decrease of about 5%. This year, the state Government has given nod to new Information Technology (IT) and Information Technology Enabled Services (ITES) policy. The policy aims at making state an IT, animation and gaming industry hub by attracting INR 50,000 crore of investment and creating 1 million jobs by 2020. Trends to watch for in 2016 The office market of Mumbai has started showing strong fundamentals, which is evident from the revived occupier demand. With the new state government in place and positive vibes from the centre in terms of favourable policies for the city’s real estate and major infrastructure projects, the city is likely to augur well in 2016. Over the next six months, we anticipate a rise in commercial demand in this market with tenants seeking quality office space. Given the lack of supply and increasing demand, we also expect a positive outlook for landlords, while in the second half of 2016, approximately 11 million sq ft office supply is expected to hit the market, which will help to keep rents stable during the year. Notes: 1. Office Market: The major business locations in Mumbai are the CBD (Nariman Point, Fort and Ballard Estate), Central Mumbai (Worli, Lower Parel and Parel), Bandra Kurla Complex (BKC) and Andheri Kurla stretch. Powai, Malad and Vashi are the preferred IT/ ITES destinations, while Airoli at Navi Mumbai and Lal Bahadur Shastri Marg are emerging as new office and IT/ITES submakets. 2. Rents/Capital Value: Market average of indicative asking price for Grade A office space. 3. Available Supply: Total Grade A office space being marketed for sale or lease in surveyed quarter. 4. City Barometer: Represents increase, decrease or stable scenario; as compared to previous quarter. 5. All the figures in the report is based on market information as on 25th December 2015. 300 250 30,000 25,000 20,000 15,000 10,000 5,000 0 200 150 100 50 0 12 30% 25% 20% 15% 10% 5% 0% 10 8 6 4 2 0 2010 2011 2012 2013 2014 2015 2017F2016F 2008 2009 2010 2011 2012 2013 2014 2015 2017F 2016F Forecast New Supply (In Mln sq ft) Absorption(In Mln sq ft) Vacancy(In %) RentalValuesINRPersqftPerMonth CapitalValuesINRPersqft CLIENT BUILDING NAME AREA (sq ft) LOCATION LEASE / SALE Abbott India Godrej BKC 400,000 BKC Sale E-Clerx Mindspace SEZ 200,000 Navi Mumbai Lease Axis Bank The Ruby 200,000 Dadar Sale Home Credit Pvt Ltd Reliable Tech Space 160,000 Navi Mumbai Lease Lupin Kalpataru Inspire 150,000 Santacruz Lease BUILDING NAME DEVELOPER AREA (sq ft) LOCATION POSSESSION Seawood Grand Central Tower I & II L & T Infrastructure 1,350,000 Navi Mumbai 2016 Godrej BKC Godrej Group 1,200,000 BKC 2016 Kohinoor Square Kohinoor Group 800,000 Dadar 2016 Forecast New Supply, Absorption and Vacancy Trends Average Rental and Capital Value Trend Top 5 Transactions of 2015 Source: Colliers International India Research Source: Colliers International India Research Source: Colliers International India Research
  • 9. Delhi office market takes a step back in 2015 Absorption plunged down by 25% YoY to 0.89 million sq ft Delhi witnessed over 0.89 million sq ft of office absorption during this year, which was about 25% less than the 2014 absorption of 1.18 million sq ft. CBD with 34% share in the total absorption remained the most preferred location among occupiers. Newly developed office micro market Aerocity also grabbed about 26% share in this demand while Saket and Jasola shared only 12% and 8%, respectively. This year, the average deal size has gone down to 9,500 sq ft as compared to last year’s 16,500 sq ft which may be the primary reason for fall in absorption. Sector wise, BFSI, with a 32% share in absorption, holds the top position, followed by IT/ITeS 30%, Manufacturing 12%, Pharma 10% and others 16%. In notable office transactions, Hike took 60,000 sq ft in Bharti Worldmark at Aerocity, VFS Global & HP took 50,000 sq ft each in R Cube Centre and Red Fort Capital Tower, both located at Connaught Place and Amarchand Mangaldas took 44,000 sq ft in Religare House located at Saket. In 2015, about 0.91 million sq ft of new supply was added to the city’s Grade A commercial office space. This new supply was primarily concentrated in Okhla, Mohan Cooperative, Aerocity and Pusa Road. Currently, the city has about 1.8 million sq ft of vacant stock available for lease/sale. Limited new supply addition resulted in marginal decrease in the city vacancy levels. Despite low absorption, average rents in Delhi increased by 2% YoY, while Connaught Place and Jasola, recorded a 2% YoY decline in rents. Capital values on an average increased by 4% YoY across the micro markets, except Saket where capital values declined by 10% YoY. During the year, Delhi Development Authority (DDA) has Rental Values *Indicative Grade A rentals in INR per sq ft per month **Connaught Place ***Netaji Subhash Place MICRO MARKETS RENTAL VALUE* % CHANGE QoQ YoY CBD** 180 - 450 0% -1% Nehru Place 180 - 250 2% 8% Saket 130 - 225 1% 8% Jasola 90 - 130 0% -2% NSP*** 70 - 120 0% 0% City Office Barometer INDICATORS 2014 2015 2016F 2017F Vacancy Absorption Construction Rental Value Capital Value Research & Forecast Report Delhi | Office January 2016 Source: Colliers International India Research Source: Colliers International India Research
  • 10. 11 Research & Forecast Report | January 2016 | <<India>> | Colliers International approved a commercial project on 51 hectare land named “Dwarka Centre” near metro corridor in Dwarka. The project will include a 14-hectare Dwarka Business Centre, which will act as a financial hub for banks and financial institutions. Trends to watch for in 2016 We expect an increase in absorption in 2016, especially from BFSI, IT/ITeS, Media & Entertainment and Government sector. Micro markets like Connaught Place, Aero City, Saket and Okhla will continue to see maximum traction. The city has a number of under construction projects such as “Skipper House” at Barakhamba Road, “Parsvnath 27” at KG Marg, “RPS Infinia” alongside Mathura Road and NBCC Plaza at Kidwai Nagar which are likely to add more than 4 million sq ft of commercial office space. However, we are not expecting much new supply in 2016 as all these projects will take atleast 2-3 years for completion. Thus in the next 12 months, there will be a marginal upward pressure on rents. Besides this, the premium Grade A buildings will continue to demand premium due to limited availability. Notes: 1. Office Market: The commercial areas in New Delhi can be broadly classified into the CBD (Connaught Place), SBD Nehru Place, Bhikaji Cama Place, Netaji Subhash Place, Jasola and Saket . 2. Rents/Capital Value: Market average of indicative asking price for Grade A office space. 3. Available Supply: Total Grade A office space being marketed for sale or lease in surveyed quarter. 4. City Barometer: Represents increase, decrease or stable scenario; as compared to previous quarter. 5. All the figures in the report is based on market information as on 25th December 2015. New Supply, Absorption and Vacancy Trends Average Rental and Capital Value Trend 300 250 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 200 150 100 50 0 2.0 25% 20% 15% 10% 5% 0% 1.5 1.0 0.5 0 Forecast New Supply (In Mln sq ft) Absorption(In Mln sq ft) Vacancy(In %) Rent
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