MARKETVIEW

India Office, Q1 2019

HYDERABAD OVERTAKES
BANGALORE LEASING FOR
THE FIRST TIME EVER
Rents Up Rents Stable Rents Down Demand (Y-O-Y) Supply (Y-O-Y)
20 Markets 48 Markets 0 Markets 2% 46%

A GLIMPSE OF THE ECONOMY Chart 1: GDP Growth Rate

Indian economic growth moderated in the 8.0

quarter ending December, slowing from 7% 7.0

% Growth (Y-O-Y Basis)

during the previous quarter to 6.6% in the 6.0
present quarter. This growth was largely 5.0
attributed to sectors such as construction (9.6%); 4.0
3.0
electricity, gas, water supply & other utility
2.0
services (8.2%); public administration, defense
1.0
and other services (7.6%). Real estate services 0
(along with financial and professional services) Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
rose slightly from 7.2% in the previous quarter to
7.3% during the review period. Source: MOSPI, Q1 2019.

Retail inflation (measured by consumer price Chart 2: Key Interest Rates

inflation or CPI) reduced to an 18-month low of
7.0
2.1% in December 2018, declined further to 2%
6.0
in January 2019 and then rose to 2.6% in
5.0
February 2019. The rise was mainly due to an
4.0
% Change

increase in food prices. The low levels of

3.0
inflation, amidst the upcoming elections led the
2.0
central bank to reduce the repo rate by 50 basis
1.0
points from 6.5% to 6% during January - March
0.0
2019. The Bank also decided to maintain a Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19
‘neutral’ monetary policy stance with the
objective of achieving the medium-term target Repo Rate Reverse Repo Rate
CPI Headline RBI Inflation Target
for CPI of 4% within a band of +/-2%.
Source: MOSPI, RBI, Q1 2019.
While the quarter saw several policy initiatives by
the government to ease out liquidity pressures The REIT was oversubscribed post its listing, with
and promote construction activity, a major both institutional and retail investors showcasing
milestone was the listing of India’s first Real interest. Hopefully, a successful listing and
Estate Investment Trust (REIT). Embassy Office performance of the REIT would prompt other
Parks, a joint venture between the real estate asset-holding companies to issue their own
company Embassy and global private equity firm offerings, thereby widening the REIT market size
Blackstone launched the country’s first REIT. in the country.

Q1 2019 CBRE Research © 2019, CBRE, Inc | 1

 MARKETVIEW INDIA OFFICE

OVERALL SPACE TAKE-UP CROSSED 12 MILLION Chart 3: Segmentation of Transaction Activity as per Transaction Size
SQ. FT. IN THE FIRST QUARTER OF 2019;
HYDERABAD, FOLLOWED BY BANGALORE, MUMBAI 4%
AND DELHI-NCR LED LEASING ACTIVITY 6%

10% 33%
The leasing activity touched 12.8 million sq. ft.
during Q1 2019, increasing marginally by about
3% on a quarterly basis. Hyderabad overtook
Bangalore for the first time to be the dominant 25%
office market driving quarterly space take-up, as
it witnessed the culmination of several pre- 23%
commitments. Other dominant markets
included Mumbai and Delhi-NCR; with all four
dominant cities accounting for more than 75% of
Less than 10,000 sq. ft. 10,000 -20,000 sq. ft. 20,000-50,000 sq. ft.
the leasing activity. Quarterly space take-up
50,000-100,000 sq. ft. 100,000-200,000 sq. ft. 200,000 sq. ft. and above
increased across Ahmedabad, Hyderabad,
Source: CBRE Research, Q1 2019.
Chennai, Mumbai and Kolkata.
Chart 4: Segmentation of Transaction Activity as per Industry
On account of the approaching sunset date of
March 31st 2020, several corporates continued to Others
15%
locate themselves in SEZs. The segment
Telecommunications
continued to account for a third of the quarter’s 1%
Pharmaceuticals/ Tech
leasing activity, with space take-up rising by Healthcare 33%
almost 20% as compared to Q1 2018. We expect 4%

this traction to continue for the next couple of

E-commerce
months of 2019. 5%

SMALL-TO-MEDIUM SIZED TRANSACTIONS (LESS

Research, Consulting
THAN 50,000 SQ. FT.) DOMINATED SPACE TAKE-UP and Analytics
7%

BFSI Flexible
As in the previous quarters, office space take-up 9% 16%
was dominated by small and medium-sized Engineering and
Manufacturing
transactions. Medium-sized transactions 10%
(ranging between 10,000 sq. ft. and 50,000 sq. ft.) Source: CBRE Research, Q1 2019.
accounted for about 48% of the transaction
activity, while small-sized transactions (less than engineering & manufacturing and research,
10,000 sq. ft.) had a 33% share. The share of consulting & analytics companies as well. Key
large-sized deals (greater than 100,000 sq. ft.) transactions included space take-up by
increased from 7% in Q4 2018 to 10% during this corporates such as Tech Mahindra, CoWrks, DBS,
quarter. Qualcomm, and Cerner.

Hyderabad followed by Bangalore, dominated
large-sized deal closures in Q1 2019, while a few
such deals were also reported in Mumbai, Noida
and Chennai. Tech corporates and flexible space
operators mainly dominated large-scale deal
closures. A few large-sized deals were also closed
by e-commerce, BFSI,
TECH REMAINED THE BIGGEST DEMAND DRIVER;
FOLLOWED BY FLEXIBLE SPACE OPERATORS
Tech corporates continued to drive office space
take-up in the country, with their share in total
leasing rising from 22% in Q1 2018 to 33% in Q1
2019.

Q1 2019 CBRE Research © 2019, CBRE, Inc | 2

 MARKETVIEW INDIA OFFICE

The continued expansion of key flexible space Chart 5: Strongest Office Rental Growth, Q1 2018 vs Q1 2019
operators across every city in the country was
18.0%
apparent with their share in total leasing activity 16.0%
rising from 5% to 16% during the same time 14.0%
period. Other sectors such as engineering & 12.0%
manufacturing (10%), BFSI (9%) and research, 10.0%
consulting & analytics (7%) also contributed to 8.0%
the leasing activity in Q1 2019. 6.0%
4.0%
RISE IN PRE-LEASING ACTIVITY 2.0%
0%

OMR 1 - Taramani to Perungudi Tol l

PBD: Wakad, Hinjewadi, Bavdhan, Phursungi

Ambattur, Ambattur Industrial Estate and Padi

SBD- Kharadi

CBD - Bund Garden Road, Boat Club Road, Koregaon

Eastern Suburbs
OMR 3 - Sholinganallur to Padur

park, Kalyani Nagar, Camp, Wakdewadi , FC Road,

As a strategy, occupiers continue to future-proof
their portfolios and hedge against future rental
escalations by pre-leasing space across various

Shivaji nagar
cities. Quarterly pre-leasing activity rose
marginally on an annual basis, largely led by
Pune, Bangalore, Chennai and Hyderabad. It was
driven primarily by tech, BFSI and e-commerce
firms. Source: CBRE Research, Q1 2019.

SUPPLY ADDITION TOUCHED 13 MILLION SQ. FT.; Chart 6: Strongest Office Rental Growth, Q4 2018 vs Q1 2019
LED BY HYDERABAD, FOLLOWED BY BANGALORE
14.0%
AND DELHI-NCR
12.0%

Supply addition in Q1 2019 rose by 23% on a 10.0%

quarterly basis to touch 13.4 million sq. ft. 8.0%
Hyderabad, Bangalore, Delhi-NCR and Mumbai 6.0%
accounted for about 80% of the quarterly supply
4.0%
addition. Ahmedabad, Chennai, Hyderabad and
2.0%
Bangalore reported a rise in development
0%
completions on a quarterly basis. SEZs continued
PBD: Wakad, Hinjewadi, Bavdhan, Phursungi
SBD- Kharadi

SBD- Kharadi
CBD - Bund Garden Road, Boat Club Road, Koregaon

CBD: Begumpet/Rajbhavan Road, Banjara Hills (Road No.

OMR 2 - Perungudi toll up to Shol inganallur

Exte nded IT Corridor: Nanakramguda, Mani konda ,

park, Kalyani Nagar, Camp, Wakdewadi , FC Road,

to account for a third of the quarter’s supply,

rising by almost 40% as compared to Q1 2018.
Almost the entire SEZ supply in Hyderabad in
Kukatpall y
Shivaji nagar

1,2,10,12)

particular was pre-committed as developers

refrain from investing in speculative
development in this segment.

SUSTAINED RENTAL MOMENTUM ACROSS PUNE,

CHENNAI, BANGALORE AND HYDERABAD Source: CBRE Research, Q1 2019.

Sustained occupier interest resulted in rental Several micro-markets in Chennai, Hyderabad

values rising by about 10-12% on a quarterly and Bangalore also witnessed rental growth by
basis across most IT segments in key micro- about 1-7% on a quarterly basis. Rental growth
markets in Pune. remained limited to core locations in Delhi-NCR.

Q1 2019 CBRE Research © 2019, CBRE, Inc | 3

 MARKETVIEW MUMBAI

MARKET SUMMARY Chart 9: Rental Value Movement

• Leasing activity increased on a quarterly basis 300

• Supply addition in Navi Mumbai, Eastern
Suburbs, BKC Periphery and Central Mumbai 2
250
• Stable rental values across micro-markets

NEW COMPLETIONS 200

Majority of the city’s supply infusion was due to

(INR / sq. ft. / month)

150
the conversion of built-to-suit (BTS) /campus
spaces into Multi-tenanted Buildings (MTB) across
Navi Mumbai, BKC Periphery and Eastern 100
Suburbs. Supply addition was also witnessed with
the release of additional floors in a premium IT
development in Central Mumbai 2. 50

SPACE TAKE-UP 0
Old CBD New BKC Central Central Western Western East er n Thane (IT) Navi
Mumbai 1 Mumbai 2 Suburbs 1 Suburbs 2 Suburbs Mumbai
Primary space take-up continued to dominate (I T) (I T) (I T)

leasing activity, owing to the availability of space Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
in recently completed investment-grade
developments in Navi Mumbai. Secondary space Source: CBRE Research, Q1 2019.
take-up was witnessed in Eastern Suburbs and
Western Suburbs 2. Non-IT developments in Chart 10: Capital Value Movement
Western Suburbs 1 and Eastern Suburbs
35,000
dominated leasing activity, followed by IT
developments in Navi Mumbai.
30,000

OCCUPIER TRENDS

25,000
Small-to-medium-sized deals continued to
dominate leasing activity, with a few large-sized 20,000
deals (greater than 100,000 sq. ft.) also recorded
(INR / sq. ft.)

across several micro-markets. Leasing activity was

15,000
primarily driven by BFSI firms, closely followed by
tech along with media & marketing companies.
10,000

PRICING TRENDS
5,000
Rental values remained stable across micro-
markets during the review period. 0
Old CBD New BKC Central Central Western Western East er n Thane (IT) Navi
Mumbai 1 Mumbai 2 Suburbs 1 Suburbs 2 Suburbs Mumbai
(I T) (I T) (I T)

Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019

Source: CBRE Research, Q1 2019.

Q1 2019 CBRE Research © 2019, CBRE, Inc | 6

 MARKETVIEW MUMBAI

Demand Supply Rent

Micro-market Key Highlights
q-o-q q-o-q q-o-q

Primary leases dominated space take-

Navi Mumbai up, with most deals closed by BFSI
firms, followed by tech companies.

Leasing activity was primarily driven by

Western Suburbs 1 media and marketing companies,
followed by BFSI firms.

7
Eastern Suburbs Space take-up increased and was
primarily driven by FMCG companies.

Source: CBRE Research, Q1 2019.

Table 3: Selected Leasing Transactions

Property District Size (in sq. ft.) Tenant
Empire Tower
Navi Mumbai 115,000 RBL Bank
(Reliable Tech Park - Ph II)
Kensington Wing A Eastern Suburbs 60,000 Deloitte
Empire Tower
Navi Mumbai 48,000 EFC
(Reliable Tech Park - Ph. II)
Source: CBRE Research, Q1 2019.

Table 4: Sub market Key Statistics

Average Rent in Q1 Average Rent in Q4
Q-o-Q Y-o-Y
Micro-market 2019 (INR/sq. ft. / 2018 (INR / sq. ft. /
change (%) Change (%)
month) month)
Old CBD (Fort, Nariman Point, Churchgate,
Ballard Estate, Cuffe Parade, Fort, Colaba) 220 220 0.0 0.0
Grade A
Central Mumbai 1 (Worli, Mahalakshmi,
235 235 0.0 0.0
Prabhadevi) Grade A (non-IT)
Central Mumbai 2 (Parel, Lower Parel,
Dadar, Elphinstone Road, Byculla) Grade A 175 175 0.0 0.0
(non-IT)
New CBD (BKC all blocks) Grade A 250 250 0.0 0.0
BKC Periphery (Kurla, Kalina, Kalanagar,
Santacruz East, Bandra East and Bandra 150 150 0.0 0.0
West) Grade A
Western Suburbs 1 (Vile Parle, Andheri
115 115 0.0 0.0
East & West) Grade A (non-IT)
Western Suburbs 2 (Jogeshwari, Goregaon,
120 120 0.0 0.0
Malad, Kandivali, Borivali) Grade A (IT)
Eastern Suburbs (Sion, Chembur,
Ghatkopar, Vidyavihar, Vikhroli, Powai,
110 110 0.0 10.0
Kanjurmarg, Bhandup, Mulund, Wadala)
Grade A (IT)
Navi Mumbai Grade A (non-IT) 100 100 0.0 0.0
Navi Mumbai Grade A (IT) 50 50 0.0 0.0
Thane (Thane City) Grade A (IT) 48 48 0.0 0.0
Source: CBRE Research, Q1 2019.

Q1 2019 CBRE Research © 2019, CBRE, Inc | 7

 MARKETVIEW OUTLOOK
INDIA OFFICE OUTLOOK 2019
Several structural changes have been underway
in the office segment in the country since the
past few years, the most important ones being
the disruptive impact of technology and the
evolving relationship between occupiers and
developers. In our opinion, 2019 would be the
year when the impact of these disruptive changes
would be clearly visible, with stakeholders
undertaking various measures to counteract the
same. This would mark a paradigm shift in the
way the segment would function going forward –
change would move from an ‘experimentation’ to
‘transformation’ stage.
Office leasing activity is expected to remain
stable in the short term, backed by corporates
looking to expand or consolidate their
operations. While interest from American
corporates is expected to sustain, we anticipate
that India’s position as a preferred outsourcing
destination would continue to attract corporates
from other geographies such as EMEA and APAC.
Moreover, policy initiatives such as Make in
India, Digital India etc, along with the emphasis
on smart cities and industrial corridors, are likely
to boost operations of both Indian and
multinational corporates. Increasingly, a larger
number of global and domestic firms are
positioning India as the destination for higher
skilled requirements, either for their global
operations (through Global Inhouse Centers -
GICs) or for tech-driven services; rather than low-
end processes.
As a result, we anticipate that the share of tech
companies would continue to rise in 2019; with
BFSI, engineering & manufacturing, research &
consulting and flexible space operators, also
likely to account for a larger share in leasing
activity on a yearly basis. Occupiers are likely to
increase agility in their real estate portfolios -
finding the right mix of flexibility and
collaborative / incubation spaces within their
core workplaces along with adding external
flexible options.
Q1 2019 CBRE Research
Other sectors, such as pharmaceuticals,
telecommunications and e-commerce, are also
likely to report higher occupier demand,
potentially giving impetus to the demand for
commercial space.
The International Accounting Standards Board
(IASB) and the Financial Accounting Standards
Board (FASB), have separately issued new lease
accounting standards in US. Accordingly, all
leases by a company would now be treated as
equal assets and liabilities on their balance
sheets. While individual real estate decisions
may be revisited, however, changes in the new
standards will have a limited direct impact on
real estate leasing decisions in India.
SUPPLY COMPLETIONS MAINLY IN
PERIPHERAL/ SUB-URBAN MICRO-MARKETS
We anticipate that the pipeline for 2019 is
expected to be relatively higher, mainly due to
the pent-up supply from 2018. The 2019 supply
pipeline would be dominated by Hyderabad,
after Bangalore, where supply anticipated to be
released would outstrip Delhi-NCR and Mumbai.
Chennai and Pune, after witnessing minimal
levels of development completions in the past
two years, are also likely to see the completion of
large-scale tech parks / corporate developments
by leading players.
Developers are also likely to continue to move
towards providing ‘smarter’ space solutions,
mainly by incorporating tech across all aspects of
a development - from workplace patterns to
facility management solutions. We also
anticipate that landlord priorities would shift
from just LEED certifications to delivery of
International WELL Building Institute’s (IWBI)
WELL Building StandardTM (WELL) certifications.
We expect Hyderabad, Bangalore and Delhi-NCR
to account for a substantial share of the SEZ
pipeline in the upcoming quarters.
© 2019, CBRE, Inc | 22
 MARKETVIEW OUTLOOK
Given the approaching sunset date, we anticipate
an increase in demand for SEZ space, particularly
in these cities.
RENTAL GROWTH EXPECTED TO CONTINUE
Similar to the previous year, we expect that rental
growth would taper in Bangalore, Chennai and
Pune. In Bangalore, the lack of readily available
supply would result in rental growth to occur
only on the basis of residual demand. With
supply addition expected in Chennai and Pune,
residual spaces along with higher quality of new
space are expected to drive rental growth.
Q1 2019 CBRE Research
In case of Hyderabad, however, even with rising
absorption, the quantum of supply lined up for
release is likely to limit rental growth – a trend
that was already visible in 2018. We also
anticipate that strong demand for space in
quality developments is likely to result in a
marginal growth in select locations in Delhi-NCR
and Mumbai in 2019. We also expect SEZ and
non-SEZ rental values to converge within the
same micro-markets across cities. Overall, rentals
are likely to remain firm with an upward bias in
active locations.
© 2019, CBRE, Inc | 23