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Pune’s office market looks bullish in 2015

By Amit - August 2, 2014

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Published: August 2, 2014 12:35:49 am

By: Anshuman Magazine

Pune’s Grade A commercial office real estate market has been increasingly attracting the attention of major office space occupiers as a second option to Mumbai, because of its freshly available quality space options, comparatively affordable rental rates, as well as its proximity and excellent connectivity with India’s financial capital.

Nearly 1.4 million sq ft of investment-grade office space was added to Pune’s total commercial office stock in the first half of 2014. This was a nearly 20 per cent increase in new office space supply over the same period last year; and a nearly 150 per cent increase over the first half of 2012. The off-CBD micro-market location of the city saw significant project completions at Bavdhan, Gultekdi and Baner during the second quarter of the year; while the CBD micro-markets of Boat Club Road and Koregaon Park had seen significant supply addition in Q1 2014.

On the policy front, meanwhile, the Pune Municipal Corporation (PMC) has approved a proposal to provide concessions to new IT firms setting up offices in the city to further promote the sector. Such firms will be charged property tax at the same rate as residential properties, bringing down office occupancy costs significantly and helping to position Pune as a preferred destination for IT firms in the country.

While a sustained demand for Grade A office space ensured the heightened pace of transactions in the city during the second quarter of 2014, the volume of large transaction closures were a result of the consolidation or expansion exercises of key corporate space occupiers. During the second quarter ended June 2014, Pune’s office market saw more than a 150 per cent increase in absorption rates on a quarter-on-quarter basis.

Quite a few corporate clients opted for larger space take-up, following the conversion of their third-party vendor businesses into captive business units. This trend is likely to continue into the forthcoming quarters, assuring accelerated transaction activity in the short- to medium-term.

The CBD of MG Road, Koregaon Park, Bund Garden, Kalyani Nagar, Dhole Patil, FC Road, and JM Road saw an increase in demand for small to medium-sized office spaces in the second quarter, even as rental values remained stable. Office leasing activity picked up in the Off CBD micro-markets of Viman Nagar, Magarpatta, Aundh, Baner, Shanker Seth Road, SB Road and Nagar Road owing to healthy demand from IT/ITeS occupiers evaluating larger format office space in IT and IT SEZ developments.

More than 85 per cent of the total office space leased in this micro-market was in IT developments. Strong demand from corporate occupiers for this location led to a rise in rental values by about 2–3 per cent quarter-on-quarter in the commercial and IT office segments.

On the supply front, the city is expected to face a shortage of new SEZ space in the medium term, when immediate space requirements are likely to become a challenge — leaving corporate occupiers with pre-commitment options alone. Pune’s traditional industrial hub has been going strong too; and apart from the IT/ITeS sector, the banking, financial services and insurance (BFSI) sector has also been targeting the city in recent times.

Multinational financial institutions, for instance, have been increasingly absorbing office space in Pune for their back-office requirements and other non-niche departments.

On the back of continuing demand, Pune’s thinning supply pipeline for new SEZ space is expected to raise rental rates by about 20–25 per cent by the next year. Large occupiers are likely to face accommodation issues for the next year-and-a half, when all the available quality space in Pune will most likely be multi-tenanted office buildings of barely Rs 20,000 – Rs 30,000 sq ft.

– The author is CMD, CBRE South Asia.

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