In the first two weeks of April, almost three-quarters (73 percent) of the Asia Pacific region’s 15 major office markets recorded a decline in leasing activity. The extension of lockdown in India, coupled with the challenges of a global recession, is likely to dent prospects for the MMR office market, The Knight Frank Asia-Pacific April 2020 Market Bulletin: COVID-19 and its impact on real estate has said.
Manila, Guangzhou, Shenzhen and Hong Kong were the only four markets that registered stable leasing activity. Many international commercial occupiers were seen to postpone leasing deals, with uncertainty around global demand, supply chains and cash flow leading to a delay in decisions, it said.
The office leasing activity across the three Tier I cities in India has witnessed a drop due to the impact of COVID -19. The lockdown has led to postponement of decisions from corporates across the spectrum due to a complete standstill of activities, supply of new offices, too, will be limited and delayed further hampering leasing activities, the report said.
However, given that current vacancy in the market is between 5-7 percent, rents are expected to remain stable. Also as India looks forward to relaxing the lockdown with norms of social distancing, vacancy levels are not expected to go up as existing companies will have to maintain their current portfolio to incorporate new public distancing norms, it said..
Shishir Baijal, the chairman and managing director of Knight Frank India, said, “The situation is extremely dynamic and hence it would be challenging to provide a forecast for the year. Given the present situation, the lockdown in India coupled with the challenges of a global recession is likely to dent prospects for the MMR office market. We should witness a drop in transaction activity in 2020, down from its historic highs in 2019, while also seeing supply limiting construction delays; all these will make rent growth elusive.”
In 2019, Bengaluru’s office market witnessed its highest gross take-up in a decade and the strong leasing momentum continued into Q1 2020. However, since the COVID outbreak, corporate occupiers have been postponing leasing deals which will impact the leasing momentum; challenges remain in short to mid-term. But the weaker currency, market undersupply and need for captive spaces will help revive take-up in the next 4 to 6 months.
In 2019, office rents in NCR rose by 4 percent, driven by growth in the co-working sector. Despite the record leasing activity last year, Knight Frank expects demand for Grade A office space to soften given the current COVID-19 crisis.
On the supply side, the lockdown has halted construction activities which will delay new supply; 19 mn sq. ft in the form of IT parks and offices in different stages of construction is expected over the coming years. However, key micro markets within Gurugram and Noida will be less impacted by the new supply and will continue to command premium.
Mumbai recorded historic growth in office market transactions in 2019 and the strong leasing momentum was maintained till Q1 2020. However, given the severity of current pandemic in the MMR region and possible extension of lockdown in the city, demand for office market continues to remain impacted
Despite stringent measures adopted by the government, the pandemic has yet to come under control in Mumbai and the threat of community transmission remains a concern; this could lead to a lockdown extension in the city.
In this scenario and given the high probability of a global recession this year, there will be repercussions on the office market as demand continues to be adversely impacted and pipeline supply declines as construction activities are delayed, it said.