Office supply demand fell by 30-35% due to Covid-19

Fresh supply of office space fell 30-35 per cent year-on-year in 2020 across major cities mainly on lower demand because of the Covid-19 pandemic, according to property consultants JLL and Savills.

While JLL India reported that new supply of office space across seven major cities declined 30 per cent to 36.34 million sq ft in 2020 from 51.62 million sq ft in the previous year, the UK-based Savills said fresh supply dropped to 30.6 million sq ft from 47.1 million sq ft across six big cities.

New office space supply was less impacted than the demand, which fell by around 45-50 per cent with corporates deferring their expansion plan and adopting work-from-home policy for employees.

The supply was also hit due to the nationwide lockdown that brought all construction activities to a standstill during April-May.

As a result, JLL said the vacancy level of office space increased to 14 per cent in December from 12.8 per cent in March 2020. As per Savills data, the overall vacancy level marginally increased to 11.7 per cent in 2020 as new supply exceeded the pace of leasing.

"Occupiers 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 per cent in Q3 2020 to 14 per cent in Q4 2020," JLL India said.

On the demand side, both JLL India and Savills India reported steep fall in leasing activities of office space.

Net leasing fell 44 per cent during 2020 to 25.82 million sq ft from a record 46.5 million sq ft in the previous year across Delhi-NCR, Mumbai, Chennai, Kolkata, Hyderabad, Pune and Bengaluru, according to JLL India.

In Savills database, leasing of office space fell to 27.4 million sq ft in 2020 from 55.7 million sq ft across six cities. Savills research has not captured the Kolkata market.

On office rentals, JLL said office rents in 2020 remained stable across the major office markets in India.

However, Savills said that the rental value change across micro-markets varied within a city compared to last year. NCR saw an average decline of about 7 per cent year-on-year, while Chennai and Hyderabad saw 3 per cent year-on-year fall. Mumbai and Pune markets sustained similar rental ranges as last year.

"The year 2019 saw historic highs with net absorption crossing 46 mn sq ft. In 2020, net absorption dipped by 44 per cent 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," said Ramesh Nair, CEO and Country Head, JLL India.

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, JLL said.

Savills India CEO Anurag Mathur said, "The overall story of 2020 is the one of survival, and most markets did exactly that. While the story of Indian office market in 2020 may not be as glorious as it was in 2019 and 2018, it still continues to strive and display resilience, in the face of Covid-induced slowdown."