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COVID-19 turnaround: Commercial space take-up clocks 16 million sq ft in January-June

Despite the focus on work-from-home on account of the pandemic, the commercial office market has clocked 16 mn sq ft of leasing between January to June 2020. The annual commercial leasing in 2020 is expected to clock 24-25 million sq ft across major Indian metro cities which is 30 percent higher than the global financial crisis, says a report by CRE Matrix.

India’s office segment took a hit due to the pandemic, recording a 44 percent decline in demand versus the previous quarter and a 61 percent drop versus the second quarter of the calendar year 2019. But the impact has not been as bad as many analysts had predicted, speculating that Work-From-Home (WFH) would play a spoilsport for the office segment, says a report titled CRE Matrix Quarterly Report Leverage Intelligence India Office, Q2 CY2020.

“Contrary to the global view writing off the commercial segment, our estimates show that office demand in 2020 would close at 24–26 msf, much higher than the 2009 demand (19 msf) witnessed during the Global Financial Crisis (GFC),” says Abhishek Kiran Gupta, CEO of CRE Matrix.

Compared with the previous worst-performing quarter, demand in quarter 2 of calendar year 2020 was recorded at 66 percent of that in the fourth quarter of the calendar year of 2019. Compared to the Purchasing Manager Index (Services) for India, the June 2020 PMI stood at 63 percent of its December 2019 levels.

The average leased area per transaction grew by 32 percent over the previous quarter as most of the demand was driven by large occupiers. Bengaluru and Hyderabad contributed to 53 percent to the first quarter of the calendar year 2020 demand versus 36 percent in the last quarter, the report said.

As major cities started unlocking, construction activity came back and surpassed the lowest office supply quarter by 90 percent in the second quarter of the calendar year of 2020.

This was partly due to the pending completion of the first quarter of calendar year 2020. This also indicated that lower demand has not irked developers to hit a pause button. Despite some tenants exiting prominent office complexes in almost every city, the all India vacancy levels were still observed lower than the worst-performing quarter and there was an increase in rentals too. Going forward, we maintain that cities would see a rather accelerated shift from high-rental areas to those offering similar quality offices with improved connectivity at affordable price points, the report noted.

In Delhi NCR, the second quarter calendar year 2020 demand was down by 40 percent versus the first quarter calendar year 2020 and at 64 percent of the first quarter of the calendar year 2018 demand levels, the report said. New completions were down by 39 percent versus to the previous quarter, and at 79 percent levels of the third quarter of the calendar year 2018. Golf Course Road and Noida Expressway together contributed to 83 percent of overall leasing in NCR. Key demand drivers were sectors such as healthcare (42 percent) and consumer discretionary (17 percent), the report said.

In MMR, office demand was at 70 percent of the fourth quarter calendar year 2019 levels, down by 65 percent versus the first quarter calendar year 2020. Completions increased by 71 percent versus the quarter one of calendar year 2020 due to pending completion of the previous quarter, the report said.

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