What Will Drive The Growth Of Office Space Market This Year?

India's stocks markets and businesses have shown a trend of cautious activity in past two years. That has led to more and more companies procrastinating their expansion plans, hence leading to a slower-than-expected growth in the leasing and rentals activity.
The first quarter of 2015 saw more than 20 per cent drop in office space rental activity, as measured in top cities. The number of transactions in the quarter also fell, as decision-making in the sector saw delays across all major companies.
Here are some of the trends noticed and forecasted for the rest of the year.

The rise after fall
Despite the fall, leasing activities and commercial real estate transactions are expected to pick up. Many realty players are expecting companies to seal delayed deals during the rest of the year, as a number of commitments might be executed. A number of companies have shown interest in many under-construction commercial properties in metros and these might lead to higher number of deals in the year.

E-commerce: The new demand driver
Leading e-retailer Flipkart created a flutter in the market, as it signed a mega two million sqft deal for office space that lasts 20 years with Embassy Office Parks in October last year. Another biggie in the e-commerce space Amazon India, too, leased 1.2 million sqft of space in May this year with IT park developer Bagmane. While similar deals are expected from players such as Snapdeal, Jabong, many newcomers may join the rush, too. This goes to show that e-commerce apart from being a growing market is also giving a boost to the leasing market in the long- term.
Back office operations will also push the warehouse market, another key sub-market in commercial real estate. Online shopping sites increased their contribution to warehouse occupation to 30 per cent of the total occupancy in the area.

Tech, the biggest client
Even as new players come in to take over the leasing market, old favourites still hold on to their supremacy. In the first quarter of the year, technology companies formed the largest sector that leased property, contributing to around 70 per cent of the total absorption of rental properties. The rental activity of the sector also went by 20 per cent on an annual comparison, indicating neither the rental market nor the industry is facing a slowdown.
While IT giant Oracle expanded it office space in J P Nagar in Bengaluru, Wipro, too, announced its plans to expand in Chennai next year. Infosys is also looking to expand its operations in Electronics city in Bengaluru. All this will ensure that technology companies will remain bread and butter business for office space rentals for many years to come.

Bengaluru up, Mumbai down
With all the rental activity by technology companies, it is no doubt that Bengaluru will remain top in terms of commercial space activity. The market is also headquarters for many e-commerce majors such as Flipkart and others, indicating burgeoning activity. India's financial capital Mumbai, however, recorded a much slower pick up in rentals, in spite of the improved sentiment. With the surplus availability of office space in micro-markets like the Bandra-Kurla Complex and Lower Parel area, the activity might increase in the coming quarters.

(Katya Naidu has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities)