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Technology sector office space absorption rebounds after two years decline
ET Realty  |  January 22, 2019

Kailash Babar Mumbai

Office space absorption by information technology and IT-enabled services firms has bounced back after a sustained decline in leasing activity for two years in a row.


In 2018, the share of the tech sector in overall space take-up rose to over 34% from around 32% in 2017. Overall, on an annual basis the sector witnessed 11% jump in space take-up during the year, showed a CBRE South Asia report.


Interestingly, the growth was primarily driven by global multinationals, accounting for a share of almost 75% in overall space take-up by tech firms.


Additionally, in lieu of the sunset date setting in, the share of Special Economic Zone (SEZ) leasing rose to 28% in 2018 from 23% in 2017. Information Technology SEZs account for 28-30% of the total exports of the country and has attracted large investments from several global and domestic institutional investors.


Currently, March 2020 is fixed as the sunset date for the service sector operating in SEZs to avail the benefit of existing income tax exemption on their export proceeds.


Moreover, the collective share of other sectors such as engineering and manufacturing, banking, financial services and insurance (BFSI), e-commerce and research & consulting, ped to 37% in 2018 from around 44% in 2017.


Meanwhile, occupiers continued to opt for flexible spaces, with the share of the segment rising to 10% with nearly 4.9 million sq ft in 2018 from 6% at 2.6 million sq ft in 2017. However, after including semi-investment grade and non-office spaces such as hotels and malls, flexible space operators closed more than 6 million sq ft of leasing during the year.


As a strategy, occupiers continued to future-proof their portfolios and hedge against future rental escalations by pre-leasing space across various cities. However, pre-leasing activity dipped marginally in the fourth quarter ending December, largely in Bangalore, Hyderabad, Pune and Gurgaon.


It was driven primarily by tech, flexible space operators and research and consulting corporates. In 2018, almost 16 million sq ft pre-leasing activity was recorded, mainly in Bangalore, Hyderabad, Pune and Gurgaon.


The year, according to CBRE, witnessed almost 35 million sq ft of new supply addition in 2018 led b y Bangalore, followed by Mumbai and Delhi-National Capital Region.


By the end of 2018, gross leasing activity touched around 47.4 million sq ft, recording a growth of 5.3% from a year ago. Bangalore, followed by NCR, Hyderabad and Mumbai dominated office leasing even on an annual basis, accounting for almost 80% of the overall space take-up, CBRE South Asia said.


Annual space take-up increased across all cities except in Chennai, Hyderabad, Ahmedabad and Kolkata. Small-to-medium sized transaction with size of less than 50,000 sq ft dominated space take up.