Office space absorption hits five-year low in Bengaluru

The absorption of office space in Bengaluru has hit a five-year low in 2020 as the Covid-19 pandemic caused a huge disruption across sections of the economy.

The country's technology hub recorded absorption of 11.43 million sq. feet of office space in 2020, a decline of 24% over 15 million sq. feet absorbed in 2019. This is also the lowest in the last five years. In 2016, the city had absorbed 11.4 million sq. feet of office space.

However, despite the decline, Bengaluru witnessed highest absorption on a pan-India basis, accounting for 31% share of the total space at 36.6 million sq. feet. As with the past few years, the Outer Ring Road office market accounted for majority share of the total transactions in 2020 – its share pegged at around 45%.

"The decrease in absorption can largely be attributed to the magnitude of hardships arising from the pandemic that took a toll on real estate activities, leading to demand shrinking considerably in the city’s office market. The concept of work from home (WFH), which was adopted as a pertinent precautionary measure to keep the pandemic in control, was the biggest challenge faced by the office market," Shrinivas Rao, CEO - APAC, Vestian Global Workplace Services Pvt Ltd said.

In terms of supply of new office space during the year, Bengaluru witnessed supply of 10.9 million sq. feet in 2020, the highest in the last five years and 9% growth over 2019. In 2019, the city saw supply of 10 million sq. feet.

The supply improved during the third and fourth quarters of 2020 largely due to a pick up in the construction activity following the return of migrant workers. For the top seven cities combined the supply stood at 34.2 million sq. feet in 2020 compared to 40.3 million sq. feet in 2019, a decline of 15% year-on-year.

Meanwhile, the worst seems to be over the office market as the supply and absorption of office space improved considerably during the fourth quarter of 2020.

Led by pent-up demand and strategic growth plans of large corporates, the last quarter of 2020 saw a major resurgence in absorption - to the tune of 4.4 million sq. feet, surpassing the absorption recorded in the corresponding period in 2019 by 83%. New supply, too, saw considerable improvement during the quarter with return of on-site labour and around 4 million sq. feet of office space being infused into the city’s market.