Indian office property market has shown resilience as indicated by the rising net office take up despite the impact of Covid-19 on the business environment and the emerging challenge of the Work-from-Home model.
Office property markets across the country have witnessed a net absorption of 5.4 million sq ft in the quarter ending September, a 64% rise against the June quarter that was impacted significantly due to the lockdown, showed data from JLL India.
The jump in office absorption is an encouraging trend especially after it dipped almost at a similar rate in the second quarter. “While we continue to see the impact of the pandemic on various businesses, there is a significant surge in activity across most office markets under consideration. This is seen in gross leasing which more than doubled from the previous quarter at 13.8 million sq ft,” said Ramesh Nair, CEO and Country Head, India, JLL.
At the same time, Nair also highlighted that large and mid-sized occupiers across major markets continue to review their real estate portfolios in a bid to optimize cost and higher emphasis is being given to sustainability and employee well-being as well as adoption of flexible working practices. While the share of occupiers from information technology (IT) and IT-enabled services segment in gross leasing dipped to 43% in the quarter from 61% in previous quarter, e-commerce and manufacturing sectors gained significant share and supported the market.
Owing to surging demand of e-commerce during the pandemic, occupiers from this sector formed 16% of leasing in July-September as against almost negligible proportion the previous quarter, while share of manufacturing occupiers also rose to 17% from 5% previous quarter. The third quarter office rebound growth was led by Bengaluru and Hyderabad, which together accounted for nearly 80% of the net absorption. The heightened activity in Bengaluru indicates a gradual resurgence in take up of spaces coupled with the translation of pent up demand from the previous quarter. New completions during the period increased 59% on-quarter with 9.2 million sq ft of new stock coming to market indicating confidence.
“With lockdown restrictions being relaxed in the third quarter in most of the markets under review, office projects in the final stages of construction or pending receipt of occupancy certificates came onboard. This resulted in an increase in the supply of office space, even surpassing 8.6 million sq ft witnessed in Q1 2020,” said Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.
In sync with net absorption, Bengaluru and Hyderabad led the increase in new completions accounting for 87% of the total new completions during the period. Interestingly, new completions in both these markets even went past the average new completion levels witnessed in the four quarters of 2019. Increased office space consolidation and optimization strategies of corporate occupiers resulted in subdued net absorption levels, which could not keep pace with new completions. This resulted in overall vacancy increasing marginally to 13.5% from 13.1% in the previous quarter.
Despite the rise in vacancy levels in southern markets, Bengaluru, Chennai and Pune continued to hover in single digits, which augurs well for a robust rebound in these markets when economic and business conditions improve in the coming quarters. Rentals across key cities remained stable except for Bengaluru that witnessed a marginal increase in rents. Stable rental values and low vacancy levels, the office market in India continues to be landlord favorable. However, owners have also become more flexible in providing increased rent free periods, reduced rental escalation and fully furnished deals to prominent occupiers lowering their net outgo.