Bengaluru remains the preferred destination for office space and continued to lead the way in absorption accounting for a 40 per cent share of the total leased space during the first quarter.
The city has seen absorption of 2.8 million sq. feet out of a total of 7.03 million sq. feet space leased in the March quarter. It is followed by Mumbai at 26 per cent and Hyderabad at 18 per cent, respectively.
However, on a year-on-year basis, Bengaluru witnessed a decline of 21 per cent in absorption compared to 3.53 million sq. feet absorbed in Q1 of 2020. The top five cities of Bengaluru, Chennai, Hyderabad, Mumbai, and Kolkata together saw a decline of 23 per cent in absorption in the March quarter.
The quarter-over-quarter (QoQ) comparison showed a steeper fall of 33 per cent.
With the impact of the second wave being more severe than the previous one, the decline in absorption has been pronounced across all the markets.
“Expectations for the new year had risen with positive traction witnessed in the market in the last quarter of 2020, led largely by pent-up demand and increased economic activities post lifting of the lockdowns,” said Shrinivas Rao, CEO-Asia Pacific, Vestian Global Workplace Services Pvt Ltd.
Besides the IT /ITeS sector, which accounted for several large-sized deals, flexible space operators saw a fair quantum of leasing too, with the demand emanating largely from enterprises with small and medium-sized space requirements.
Going forward, given the quantum of pre-committed space transactions in recent periods, the Bengaluru office market is expected to remain restrained but steady and observe a more robust absorption once the situation improves with the implementation of a broad-based vaccination strategy, Vestian Global said in a research note.
On the new completions front, the city witnessed the infusion of 3.4 million sq feet of office space in Q1 2021, the majority of it observed in the peripheral east market of Whitefield.
A decrease of 13 per cent in new completion was recorded on a YoY basis, partly attributable to the fact that with the concept of work from home gaining prominence in the IT/ITeS sector — the key demand driver of the market — developers have adopted a cautious stance in order to assess the situation.
Office rents have remained largely remained steady for Grade A office space, owing primarily to strong fundamentals ruling the market, and has shown an annual increase of 3 per cent.
In the CBD area, rental values are ruling in the range of Rs 90-150 per sq feet for Grade-A properties. The rentals for Grade-B properties in the same area are in the range of Rs 72-95 per sq feet per month.