The all round workplace industry in India witnessed a net absorption lower of 33% in Q1 2021 quarter-on-quarter (Q-o-Q), with 5.53 million sq. ft leased through 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% of the levels witnessed in Q1 2020.
Bengaluru, Hyderabad and Delhi NCR accounted for practically 80% of the net absorption through the quarter. Moreover, Bengaluru and Delhi NCR have been the two markets which witnessed an boost in net absorption when compared to Q4 2020.
“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,” stated Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.
“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.
Net absorption dips soon after a two consecutive quarter rally
Significant part of pre-commitments, leasing volumes robust
Pre-commitments in new completions played a substantial part in driving net absorption. In the initial quarter, 31% of the new completions through the quarter was currently pre-committed. Maximum pre-commitment levels have been observed in the southern markets of Bengaluru (51% of the new completions) and Hyderabad (45% of the new completions).
At the very same time, it is crucial to note that the leasing momentum in some of the bigger markets have remained promising in the initial quarter of 2021. The quarter witnessed gross leasing volumes of 7.5 million sq. ft across the major seven markets. Interestingly, the bigger industry of Mumbai saw a enormous jump in leasing volume from .5 million sq. ft in Q4 2020 to 1.6 million sq. ft in Q1 2021. This was majorly driven by pick big pre-commitment bargains in upcoming spaces inside the BFSI space. Further, Delhi NCR saw a marginal boost in leasing volumes from 1.9 million sq. ft in Q4 2020 to 2 million sq. ft in Q1 2021.
New completions through Q1 2021 have been recorded at 13.43 million sq. ft, a marginal boost of 5% q-o-q. In sync with net absorption, the markets of Bengaluru, Hyderabad and Delhi NCR accounted for practically 80% of the new completions through the quarter. On a Y-o-Y basis, new completions across the major seven cities jumped by 56% from the 8.6 million sq. ft recorded in Q1 2020. Interestingly, new completions even surpassed the typical quarterly levels of ~13 million sq. ft witnessed through the historic year of 2019.
Occupiers continue to evaluation their genuine estate portfolios and are adopting consolidation and optimisation techniques in order to rationalise space essential when minimising expenses. The subdued net absorption levels could not retain pace with new completions. This resulted in all round vacancy growing from 14.% in Q4 2020 to 14.9% in Q1 2021. Despite the rise in vacancy levels, Bengaluru, Chennai and Pune continued to hover in single digits.
Rentals across markets stay steady
Office rents in Q1 2021 remained steady across the important workplace markets in India. With vacancy levels nevertheless under 15% and restricted upcoming Grade A provide across crucial markets in the next handful of years, the workplace industry in India continues to be tilted towards landlords. Hence, reduction of headline rents is not a well-liked phenomenon and rents are anticipated to stay variety bound in the quick to medium term. However, landlords continue to be accommodative to the demands of occupiers and are supplying flexibility by way of improved rent-absolutely free periods, lowered rental escalation and totally furnished bargains to occupiers to close bargains.
Occupiers stay cautiously optimistic about the future
The leasing momentum in the upcoming quarters will primarily rely on the time taken to include the second wave of COVID-19 circumstances. However, it is crucial to point out a handful of points that offers self-assurance that there is light at the finish of the tunnel.
The growing attendance in offices across the important markets just before the second COVID-19 wave bears testimony to the self-assurance and commitment of corporates to get back to working from workplace. It is crucial that landlords continue to be receptive to the demands of tenants and supply versatile selections, in terms of space as properly as worth.