Net absorption in office space market declines 33%

MUMBAI: The overall office market in India witnessed a net absorption decrease of 33 per cent in Q1 2021 quarter-on-quarter (Q-o-Q), with 5.53 million sq. ft leased during Jan to March 2021, according to JLL Office Market Update - Q1 2021. On a year-on-year (Y-o-Y) basis, net absorption in Q1 2021 stands at 64 per cent of the levels witnessed in Q1 2020.

Bengaluru, Hyderabad and Delhi NCR accounted for nearly 80 per cent of the net absorption during the quarter. Moreover, Bengaluru and Delhi NCR were the two markets which witnessed an increase in net absorption when compared to Q4 2020. Net absorption dips after a two consecutive quarter rally

"While 2020 ended on a relatively high note, there was still uncertainty in the market with respect to resumption of business as usual. Occupiers continued to adopt a cautious approach and focused on reassessing their real estate portfolios and long-term commitments. To add to the woes, increasing fears of a spike in Covid-19 cases in the second half of March further pushed the occupiers to press pause again and postpone their real estate decisions," said DrSamantak Das, Chief Economist and Head of Research and Real Estate Intelligence Service (REIS), JLL India.

"As the vaccination drive is gaining momentum and occupiers remain cautiously optimistic, the year 2021 is expected to witness close to 38 million sq. ft of new completions, while net absorption is likely to hover around the 30 million sq. ft with a marginal downward bias. This will be at par with the average annual net absorption levels seen during 2016-2018," he added.

In the first quarter, 31 per cent of the new completions during the quarter was already pre-committed. Maximum pre-commitment levels were observed in the southern markets of Bengaluru (51 per cent of the new completions) and Hyderabad (45 per cent of the new completions). At the same time, it is important to note that the leasing momentum in some of the larger markets have remained promising in the first quarter of 2021.

The quarter witnessed gross leasing volumes of 7.5 million sq. ft across the top seven markets. Interestingly, the larger market of Mumbai saw a massive jump in leasing volume from 0.5 million sq. ft in Q4 2020 to 1.6 million sq. ft in Q1 2021. This was majorly driven by select large pre-commitment deals in upcoming spaces within the BFSI space. Further, Delhi NCR saw a marginal increase in leasing volumes from 1.9 million sq. ft in Q4 2020 to 2 million sq. ft in Q1 2021.

New completions during Q1 2021 were recorded at 13.43 million sq. ft, a marginal increase of 5 per cent q-o-q. In sync with net absorption, the markets of Bengaluru, Hyderabad and Delhi NCR accounted for nearly 80 per cent of the new completions during the quarter. On a Y-o-Y basis, new completions across the top seven cities jumped by 56 per cent from the 8.6 million sq. ft recorded in Q1 2020. Interestingly, new completions even surpassed the average quarterly levels of 13 million sq. ft witnessed during the historic year of 2019.

Occupiers continue to review their real estate portfolios and are adopting consolidation and optimisation strategies in order to rationalise space required while minimising costs. The subdued net absorption levels could not keep pace with new completions. This resulted in overall vacancy increasing from 14 per cent in Q4 2020 to 14.9 per cent in Q1 2021.

Despite the rise in vacancy levels, Bengaluru, Chennai and Pune continued to hover in single digits. Rentals across markets remain stable Office rents in Q1 2021 remained stable across the major office markets in India.