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As the Indian economy underwent a dip due to a drop in domestic consumption spurred by the liquidity crisis, India’s GDP dropped to 5% in Q1 2019 reflecting dampening market sentiments. In the midst of this otherwise gloomy economic climate, the office market across the top seven cities in India continued to grow. From the launch of the country’s first real estate investment trust (REIT) to a historic high in office space leasing, this year has been remarkable by all standards. However, despite the slump, the commercial segment is holding strong due to interventions by the government to address the situation. Through the implementation of packages to boost the ailing automobile sector, reduction of corporate tax and other incentives, the cascade effect has been bolstered significantly.
Taking into account the wide array of measures to stem the liquidity crisis, it is expected that the real estate segment will stabilize. The tax cuts will lead to a boost in corporate incomes, give a thrust to employment with hiring expansion, improve the business ecosystem and enable India to establish its market at the global level in a more attractive and competitive for investors in the long term. These developments will also improve overall sentiments and encourage more businesses to set up their operations and give investors all the more reason to step into the thriving landscape. Considering that the liquidity crisis is limited to the residential segment, rising occupier interest will provide the needed momentum in the office segment in the times to come.
Bearing out the rising demand in the office segment is the fact that leasing activity in 2019 jumped by more than 30% during the first three quarters of the current year. This amounted to an absorption of 47 million sq. ft., which is a huge increase compared to the activity in 2018. The majority of the uptake is being witnessed in Bengaluru which accounts for around 80% of the activity, with Hyderabad NCR and Mumbai following closely behind. In Q3 2019, office absorption registered moved forward at a meteoric rate with 15.4 million sq. ft. of space being leased out, amounting to a growth of more than 20% on an annual basis.
Looking at the industries that are driving the major portion of the transaction volume, IT corporates contributed to the major portion of the occupation of office space in the third quarter of 2019, closely followed by research and analytics companies (19%) and flexible space operators (15%) which are capitalizing on the buoyant market.
With the overall activity getting a major boost, occupancy of office spaces is expected to continue to push forward strongly in the short term crossing around 60 million sq. ft. by the end of this year. US-based companies will continue to focus their attention on the market, but India’s position as a favourite destination for outsourcing will attract corporates from other countries as well. Other industries such as pharmaceuticals, healthcare, telecom and e-commerce will also provide a markedly higher impetus to the commercial market with higher occupier demand.
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