Office Space Supply Rose To A Record In First Half 2019 In India: Knight Frank Report

Office space supply in India surged to a record in the first six months of 2019 even as the residential market may have shown signs of recovery.

That's according to Knight Frank India's half-yearly report for real estate, which studied eight major cities. Office space supply rose 31 percent over last year to a decade high of 23.9 million square feet in the first six months of 2019, with the information technology/IT-enabled services sector accounting for over a third of space utilisation, the report said. Sales of residential launches, it said, grew 4 percent, with project launches rising 21 percent.

“Double-digit rental growth in five out of eight markets reiterates the underlying strength of Indian office market,” Shishir Baijal, chairman and managing director of Knight Frank India, said in a statement. The spurt in demand for higher end roles in the artificial intelligence and data security domains have led to a welcome and significant 59 percent increase year-on-year in demand from the IT/ITeS sector during first half of 2019, he said. “Co-working spaces continue to drive transaction volumes and influence occupier demand.”

The Indian real estate sector was hit by a temporary slowdown over the past two years due to a raft of measures implemented by the Narendra Modi administration, including a law the protects the interests of homebuyers, demonetisaton, the goods and services tax and a crackdown on benami property (or property held via proxy). The measures were targeted at the parallel economy and widening the tax net.

The cities that were studied were Mumbai, NCR, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad.

Office Market

Transaction levels in the office market, too, rose to a decadal high of 27.4 million sqft in the first six months of the year, due to demand from IT/ITeS sector and co-working spaces, the report said.

Average rental value across eight cities grew by 10 percent over last year. Rental growth in Ahmedabad was the highest, at 14.3 percent, over last year, followed by Bengaluru and Hyderabad at 13.5 percent and 11.3 percent, respectively, it said.

Residential Market

Supply and sales in residential market in the eight cities grew for the third consecutive half-year period, hitting their highest levels since November 2016—when demonetisation was announced—to 0.11 million units and 0.13 million units, respectively.

That, according to the report, was driven by developers' focus on affordable housing and government's incentives under the “Housing For All by 2022” programme.

Developers are focusing on affordable housing and lower ticket sizes, the report said, with over half of the launches in the period in ticket sizes under Rs 50 lakh, and around 78 percent under Rs 1 crore.

“The concerted efforts by the government and the incentives given have resulted in substantial demand in affordable housing which has resulted in an overall boost to residential sales,” Baijal said. “This also seems to be in line with the government vision for “Housing for All.”

Weighted average prices have stagnated across cities, with prices declining in Mumbai, Pune and Chennai by a further 3 percent, 4 percent and 3 percent over last year, respectively. In contrast, prices grew by 9 percent in Hyderabad due to high proportion of ready inventory and very little supply coming online in 2018.

Growth in residential prices in the top cities, except Hyderabad, has been below the retail inflation level, the report said.

While unsold inventory across the eight cities declined by 9 percent year-on-year in the first six months of the year, Mumbai was the only market to record increased inventory overhang of 14 percent.

Watch the interaction with Knight Frank here: