Growth Outlook: Pune Office Market

December 17th, 2012 by Alok Jha

While considering Pune’s growth outlook, various encouraging factors simultaneously came to mind. The city’s strong economic generators and decent employment opportunities and the better standard of living available there have shaped it into one of the top real estate destinations in the country. The city has attracted people from various parts of the country, which has helped create demand for a different asset class. This has also contributed to the growth of the city’s commercial asset class. Considering Pune’s amount of available and skilled manpower and cost-effective projects, especially in the Grade A class, various indicators show that there is a positive trend in the commercial sector from an occupier’s perspective.

However, it would be inappropriate to paint an entirely rosy picture. There has been some economic instability, which has had an overall bearing on Pune’s market and led to major companies making meticulous decisions about their business expansion plans by evaluating every possible factor. The transaction activity in the first two quarters of the year saw healthy demand. However, in 3Q12, this was not the case and a relative slowdown in the city’s absorption levels was witnessed in every segment of the commercial asset class, including IT/ITes and Non-IT. A similar trend was observed in Hyderabad and Kolkata. Rise in transaction activity in Mumbai and Chennai pushed the share of total absorption in Tier I cities to 72%.

Pune and other cities, such as Kolkata and Hyderabad, experienced low transaction activity during 3Q12 compared to the two quarters prior. However, with the expansion plans of major IT companies and good pre-commitment levels in the city’s under-construction projects, Pune’s transaction activity will likely pick up in the coming year. An increasing trend of occupiers choosing to consolidate their offices by vacating multiple small offices and taking up larger areas in secondary and sub-urban districts has also reinforced demand in the city. The deadline for SEZ Occupiers’ profit-linked deductions is definitely an important factor considered by IT clients while timing their expansion plans. Pune is expected to see an addition of about 3.5-4.0 million sq ft of space over the next 12 -18 months and absorption of approx. 3.0 – 3.5 million is anticipated for the same time period.

In 4Q12, Pune’s leasing activity has increased compared to that of 3Q12. Also, given the existing enquiry levels and demand in the city, increased leasing activity could be seen in 2013 compared to 2012. The combination of strong demand and the restricted amount of ready-to-occupy supply could be instrumental in lowering the city’s overall vacancy rate during the coming quarters. As such, demand for good-quality office space may exceed the existing supply.

Having said that, it is pertinent to mention the challenges Pune can come across. Pune requires good infrastructure, International Airport, widened road etc. Cities like Bangalore and Hyderabad are also posing stiff competition being superior in some of the aspects. Hence, the anticipated growth needs to be fuelled with local, central and state level government policies along with huge investment in infrastructures by the government bodies then only Pune can take a lead in the bandwagon of development.

About the author
Alok Jha is the Manager for Jones Lang LaSalle in India, based in Pune.


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