Office space absorption set to drop 20-30% in 2020

covid-19 impact
Last Updated 24 May 2020, 21:47 IST

The office space absorption is set to decline around 20-30% in 2020-21 as compared with the same in the previous year due to uncertainty over the time required for the Indian economy to return to normalcy, which is battered due to the spread of COVID-19 pandemic.

The decline in demand would be significant this year on account of the increasing magnitude of the outbreak in the US and other European countries. A large number of MNCs that drive office demand in India, are headquartered in these countries affected by COVID-19 outbreak.

According to the data available with the global workplace solutions firm Vestian Global, top seven cities in the country including Bengaluru accounted for absorption of 58.6 million sq. feet of office space in 2019, a growth of 30% over the previous year. Of this, Bengaluru accounted for 25.6% at 15 million sq. feet. However, due to the shutdown of the industry for the last two months, which has resulted in the delay in completion of projects as well as lower demand for office space, the absorption is set to fall in the range of 20-30% in 2020, Vestian Global said.

The city also witnessed 8% annual growth in absorption in 2019 compared to a national average growth of 30%.

“The present situation is ruled by uncertainty owing to the indefinite nature of the COVID-19 outbreak. Corporates are expected to defer their decisions on expansion plans/ leasing of commercial spaces by at least two to three quarters while continuing to carry out their businesses through work from home. This would lead to a decline in gross absorption, slowing down the demand in 2020,” Shrinivas Rao, CEO-APAC, Vestian Global Workplace Solutions told DH.

For the current year, Vestian Global had projected absorption of 55 million sq. feet across the top seven cities, while Bengaluru was expected to account for about 27.3% of the total space at 15 million sq. feet.

In terms of fresh supply of office space, the top seven cities added 44.15 million sq. feet in 2019, a year-on-year growth of 27%.

Of which Bengaluru accounted for 10 million sq. feet, a YoY growth of 33%.

During the first quarter ended March 2020, top five cities in the country such as Bengaluru, Mumbai, Chennai, Hyderabad and Kolkata saw absorption of approximately 9.18 million sq. feet office space during January-March quarter of 2020, depicting a decline of just 3% over the absorption observed in the corresponding period in the previous year.

Majority of the absorption was observed during the first two months of Q1 2020, before the COVID-19 outbreak and the ensuing lockdown in the month of March, leading to the deferment of several large-scale leasing decisions.

Bengaluru leads the way

During Q1 2020, Bengaluru led the way with 38% share of the total absorption in these five cities, followed by Mumbai at 26%. While Hyderabad accounted for 18% share, Chennai and Kolkata accounted for 16% and 2% share respectively.

Bengaluru registered 3.53 million sq. feet office space absorption during the first quarter of 2020, signifying a drop of 11% as compared with the absorption in the same quarter a year ago. It is to be noted that the COVID-19 outbreak impacted adversely on office activity during the last month of the quarter when lockdowns were imposed across the country to contain the virus.

However, there was a substantial growth of 47% in Q1 2020 when compared with the absorption in the previous quarter (Q4, 2019), primarily on account of the new supply.

The new office space completions for Q1 2020 was recorded at 7.5 million sq. feet in the five cities, depicting a significant dip of 22% as compared with the quantum that had become operational a year ago in Q1 2019.

Bengaluru registered the highest supply of 3.9 million sq. feet in Q1 2020, thus accounting for a lion’s share of 52% of the total supply, followed by Mumbai with 27% and Hyderabad with 13% share.

Chennai brought up the rest, accounting for 8% of new supply, as Kolkata did not witness any new supply during the quarter.

Largely, the supply was impacted by the spread of the COVID-19 pandemic as construction had to be halted owing to lockdowns in the country and the migration of labour force to their hometowns, Vestian Global said.

(Published 24 May 2020, 18:29 IST)

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