Tuesday, March 3, 2020

Pre-Commitment To Support India’s Office Growth Story During 2020


The Indian office market is setting new benchmarks in an otherwise gloomy economic climate. According to a JLL research on “Office Pre-commitment” released today, “Nearly 52-mn sq ft of Grade A office space was completed and more than 46-mn sq ft absorbed in 2019 in the seven major office markets of India. This historic leasing activity was backed by strong pre-commitment at more than 50% of the Grade A supply.”

Despite an expected decline of office space supply in 2020 to 47.5 million sq ft from over 51 million sq ft in 2019, net absorption is likely to clock a robust over 40 million sq ft mark backed by significant pre- booking  or pre-leasing of space to the tune of 30% by occupiers. The net absorption for the year 2020 will be much higher than the annual average for the last five years which stood at 35 million sq ft.

“The strong pre-commitment activity is an indication of the intrinsic strength of the Indian office market. Moreover, it bears testimony to the increasing importance of real estate in the business plan of corporate occupiers. In markets that have a shortage of quality office supply and increasing pressure on rents, the need to plan for future space requirements becomes critical. Hence, single digit vacancy markets drive pre-commitment levels with large companies finding it viable to commit to office spaces in the under construction phase,” says Ramesh Nair, CEO and Country Head, JLL India

“IT-ITeS occupiers account for a majority of the pre-commitment leases across most of the top office markets in India. They constitute more than 50% of the pre-committed office space in 2020.  These occupiers require larger floor plates and this type of arrangement becomes a necessity in markets with limited availability of Grade A office spaces. Occupiers from the BFSI and co-working sectors are the next big contributors to pre-commitment in 2020 with a share of 13% each,” says Dr. Samantak Das, chief economist and ED, JLL India.

Office markets like Hyderabad, Chennai and Pune that have very limited availability of Grade A quality office supply lead in pre-commitment activity. Hyderabad witnessed the highest pre-commitment levels amongst the seven major office markets in India, with more than half of the expected supply in 2020 already pre-committed. Even within these cities, pre-commitment activity is concentrated in the primary office submarkets that have low single-digit vacancies.

Lastly, it is pertinent to note that most pre-commitment deals are witnessed in projects by reputed developers with a proven track record of timely delivery. Well-planned amenities and contiguous large floor plates are important factors that entice occupiers to pre-commit to office spaces.

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