With most large corporates looking at a gradual return to the workplace, initial signs of market activity across cities indicates a return to space planning and real estate portfolio assessment by occupiers leading to the total gross leasing being recorded at 14.7 msf, Cushman & Wakefield has said in India office Market report Q3 2020.
The market, however, still remains sluggish in comparison to the previous year as the overall leasing till year-to-date 2020 was 17.5 percent lower as compared to YTD-2019.
Of the total 14.7 msf gross leasing across cities, pre-commitments accounted for 36 percent followed by fresh leases and term renewals, contributing 35 percent and 29 percent respectively.
IT-BPM sector accounted for the highest share (29%) in overall leasing followed by captive centres (GCCs) at 17 percent and engineering and manufacturing with 15 percent. Flex workspaces with only 4 percent leasing share in the third quarter continued to remain muted during the quarter, it said.
New completions in the third quarter 2020 were recorded at 8.44 msf, a 12.0 percent growth on a quarterly basis with Bengaluru leading with 51 percent share, the report said.
Bengaluru led the way with a 51 percent share of new supply, followed by Hyderabad and Mumbai with 22.3 percent and 10.8 percent shares respectively. On a YTD-2020 basis, Bengaluru accounted for the maximum share (34.7%) in pan India project completion rates, followed by Hyderabad, Mumbai and Delhi NCR with 22.9 percent, 14.9 percent and 12.2 percent shares respectively.
Completion delay of at least 3-6 months is expected across majority of the cities and for projects that lack considerable pre-commitment levels
Gross leasing activity more than doubled in Q3, as compared to the previous quarter, with the southern cities of Hyderabad, Bengaluru and Chennai being the most active markets, accounting for 23.7 percent, 22.9 percent and 19.4 percent respectively of pan India gross leasing activity. Though on a YTD basis, 2020 gross leasing activity has been lower by 17.5 percent as compared to 2019 indicating a marginal dip in overall market activity, the report said.
Small to medium sized office spaces in demand
With many of the occupiers still being in wait-and-act mode deferring consolidation or expansion requirements and having plans to return to the workplace by Q1 2021, new enquiries for large sized space are less in number while small to medium sized requirements continue to remain active in the market.
While fresh leasing has recorded a drop in share of gross leasing activity from 51 percent in Q2 to 35 percent in Q3, the q-o-q rise in gross leasing volume was majorly driven by term renewals, which accounted for 29.0 percent of gross leasing in Q3 in comparison to 2 percent in the previous quarter.
While some occupiers are re-negotiating on pre-renewals, majority of the term renewals due for the quarter has been concluded successfully with occupiers’ cost optimisation measures holding centrestage, the report said.
Pre-commitment activity gains momentum
Pre-commitment activity also witnessed greater momentum during Q3 and stood at 5.26 msf (36% of total gross leasing volumes) as compared to 2.74 msf (53% of GLV) in the previous quarter.
Keeping pace with their contribution in overall gross leasing, the Southern cities accounted for a higher share in overall pre-leasing as well. Chennai led with a 41 percent share followed by Hyderabad and Bengaluru contributing 28 percent and 24 percent, respectively.
The net absorption in Q3 2020 stood at just 2.69 msf, which was lower by 35.3 percent on a quarterly basis and 75.2 percent lower on a y-o-y basis.
Despite improved leasing momentum during the quarter, the net absorption in majority of the cities has been low, as occupiers across cities and categories have been scaling down their existing occupied space or vacating spaces and relocating to a new space leased resulting in short term vacancy spikes.
However, Bengaluru and Hyderabad contributed significantly for 65 percent and 25 percent respectively of pan India net absorption during Q3, mainly due to projects with significant pre-commitments getting operational during the quarter. While 57 percent of the 4.3 msf of completions in Q3 was pre-leased in Bengaluru, for Hyderabad it was 37 percent of its 0.18 msf of new supply additions, the report said.