India office leasing continues recovery; absorption up 52% in Q4 vs Q3 2020 at 8.27 million sq ft: JLL

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  • Hyderabad led the pack contributing 34% to the overall net absorption in Q4 2020
  • Maximum QoQ increase in net absorption was witnessed in Mumbai, Delhi NCR and Chennai
  • 56% of the new completions during the quarter already pre-committed

MUMBAI, India, Dec. 29, 2020 /PRNewswire/ — India’s office market continues to recover witnessing a net absorption of 8.27 million sq ft, an increase of 52% in Q4 2020 (Oct-Nov-Dec) when compared to Q3 2020. Except for Bengaluru, net absorption of office spaces improved in the other six cities (Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, Pune) according to JLL Research. Hyderabad led the pack with the highest net absorption in Q4 2020. While the southern markets of Bengaluru and Hyderabad accounted for more than 50% of the net absorption in Q4 2020, maximum increase in net absorption (when compared to Q3 2020) was witnessed in Mumbai, Delhi NCR and Chennai. Kolkata also witnessed a strong resurgence albeit on a lower base.

The increase in net absorption was driven by pre-commitments in new completions during the quarter. 56% new completions were already pre-committed. Moreover, office occupiers usually take a longer-term view while making leasing decisions and many occupiers are utilising the current situation to get attractive deals from landlords. While IT/ITeS continues to form a majority proportion, leasing activity is being driven by increased demand for office spaces from sectors such as e-commerce, healthcare and FMCG.

Net absorption on an upward trajectory during the last 6 months

CityQ1 2020
(mn sq ft)
Q2 2020
(mn sq ft)
Q3 2020
(mn sq ft)
Q4 2020
(mn sq ft)
Growth (%)
Q4 2020 over Q3 2020
Delhi NCR1.550.500.201.02410%
Note: * Kolkata includes all grades of office buildingsSource: Real Estate Intelligence Service, JLL Research   

“The year 2019 saw historic highs with net absorption crossing 46 mn sq ft. In 2020, net absorption dipped by 44% when compared to 2019. However, a comparison to the average annual net absorption levels between 2016 and 2018 elucidates a more realistic and thus resilient nature of the Indian office market. Led by the southern markets of Hyderabad, Chennai and Bengaluru, net absorption levels in 2020 reached 81% of what was observed between 2016 and 2018,” said Ramesh Nair, CEO and Country Head, JLL India. “Notably, net absorption in Hyderabad crossed the average annual levels witnessed during that same time frame,” he added.

On an annual basis sustained recovery in net absorption observed

(mn sq. ft)
(mn sq. ft)
Delhi NCR4.893.2767%
Source: Real Estate Intelligence Service (REIS), JLL Research1. Average annual net absorption between 2016 and 2018; 2019 is not considered since the year was an outlier with exceptionally higher levels of market activity2. Net absorption in 2020 as a proportion of the average annual net absorption between 2016 and 2018 

The office real estate market was most impacted as lockdown measures disrupted the way we work. Corporates had to adopt work-from-home as an alternative, which brought in its wake, a new set of possibilities and challenges. Perceptions around the scale and potential of remote working changed. Earlier, the view was that remote working as a concept would not work in India. This changed with the remote working experiment proving to be fairly successful for a majority of the organisations. However, that does not mean that work from home presents a sustainable long-term solution for all corporates. It presents several physical and cultural challenges, more so for a country like ours with a large proportion of employees staying in multi-generational households.Work from home could be, at best, a supplement to the traditional way of working from office and could impact the office market demand by an estimated up to 20% in the medium to long term. This dip will be counter-balanced by increasing demand for office spaces from emerging sectors like healthcare, e-commerce and data centres. De-densification and splitting of offices are expected to further drive demand.

Confidence in new completions, pace picks up in last quarter

Q1 2020
(mn sq ft)
Q2 2020
(mn sq ft)
Q3 2020
(mn sq ft)
Q4 2020
(mn sq ft)
Growth (%)
Q4 2020 over Q3 2020
Delhi NCR1.941.940.221.35514%
 Note: * Kolkata includes all grades of office buildingsSource: Real Estate Intelligence Service, JLL Research 

In another big sign of a continued recovery, new completions during the October-December quarter were recorded at 12.78 million sq ft., an increase of 39% when compared to Q3 2020. “The southern markets of Hyderabad, Chennai and Bengaluru accounted for a major chunk (71%) of the total new completions in Q4 2020. On an annual basis, new completions across the top 7 cities dipped by 30% to about 36.34 million sq ft in 2020 as compared to 51.62 million sq ft in 2019. This being said, it is important to point out that new completions surpassed the average annual levels of ~34million sq ft witnessed during 2016-18 ,” said Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL. “The year 2021 is expected to witness close to ~38-40 million sq ft of new completions, while net absorption is likely to hover around 32-35 million sq ft. This will be at par with the annual net absorption levels seen during 2016-2018,” he added.

Vacancy in Grade A office space increases

As of March 2020 (%)As of June 2020 (%)As of Sep 2020 (%)As of Dec 2020 (%)
Top 7 cities12.80%13.1%13.5%14.0%
Source: Real Estate Intelligence Service, JLL Research

Occupiers, however, continue to review their real estate portfolios and are adopting consolidation and optimisation strategies through the year. The relatively subdued net absorption levels could not keep pace with new completions. This resulted in overall vacancy increasing from 13.5% in Q3 2020 to 14.0% in Q4 2020.  Despite the rise in vacancy levels, the markets of Bengaluru and Pune continued to hover in single digits. This augurs well for a strong rebound in these markets as economic and business conditions are expected to gradually improve in the coming quarters

Rentals across markets remain stable

Office rents in 2020 remained stable across the major office markets in India. With stable rental values, range-bound vacancy levels and limited upcoming Grade A supply across key markets, the office market in India continues to be landlord favorable. Hence, reduction of headline rents is not a popular phenomenon and rents are expected to remain stable in the short to medium term. However, landlords are considering the current situation and have become more accommodating to the demands of occupiers.  Landlords across markets have become more flexible in providing increased rent-free periods, reduced rental escalation and fully furnished deals to occupiers which reduces their net effective rental outgo

Looking ahead: ‘Flexibility’ the key to speeding up the recovery process

Q4 2020 saw recovery being sustained in both net absorption as well as new completions. The pace is only expected to increase in the upcoming quarters. However, some changes are bound to happen. Flexibility will be the key to speeding up the recovery process. Landlords will have to be more receptive to the demands of tenants and offer flexible options, in terms of space as well as value. Learnings from the pandemic will also be incorporated in office design along with an increased focus on sustainability and employee wellness. Resultantly, tenant expectations for quality spaces is expected to increase which will lead to a trajectory of graded office space developments

Strong market fundamentals, sustained IT sector growth, increasing demand from sectors such as e-commerce, healthcare, FMCG and the increasing presence of institutional investors will continue to drive the office market in the times to come and office, in its new avatar will only emerge stronger in the next normal

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