Office market recovers in Q4, net absorption up 52% over Q3

India’s office market, which witnessed a record low due to the impact of Covid-19 pandemic during the June quarter, has staged a smart recovery during the December quarter.

The net absorption improved to 8.27 million sq. feet, a quarter on quarter increase of 52%. During the third quarter, the net absorption stood at 5.43 million sq. feet across top 7 cities.

Except for Bengaluru, net absorption of office space 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.

During the December quarter, Bengaluru witnessed 50% decline in net absorption at 1.37 million sq. feet compared to 2.72 million sq. feet in September quarter. Hyderabad witnessed the highest amount of office space absorption at 2.83 million sq. feet, a growth of 84% over Q3.

According to JLL Research, 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.

In 2020, net absorption dipped by 44% when compared to a net absorption of 44 million sq. feet in 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,” Ramesh Nair, CEO and Country Head, JLL India said.

New completions during the October-December quarter were recorded at 12.78 million sq. feet., 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. feet in 2020 as compared to 51.62 million sq. feet in 2019,” Samantak Das, Chief Economist and Head of Research & REIS, India, JLL said.

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, JLL Research said.