India’s office space leasing market moved at a measured pace as most occupiers halted their expansion plans in the wake of the unanticipated second wave of COVID-19. In the January-June 2021 period, office absorption in six major cities stood at approximately 10.9 mn sq. ft, down 38% from the corresponding months a year ago, Savills India said in a report.
The new supply rose by 4% at 18.0 mn sq. ft. in H1 2021 from the year-ago period, Savills India said in the report titled India Market Watch Office.
Despite the ongoing pandemic, the technology (IT) occupiers continue to lead the demand followed by the BFSI segment. While the IT sector has increased absorption and holds a 51% of the share, their combined share of approximately 63% is the same as in H1 2020, it said.
Bengaluru, Delhi NCR and Mumbai constituted around 69% of the total leasing activity in H1 2021 across top cities of the country. Bengaluru continued to lead with 4.1 mn sq.ft of leasing activity representing 37% share in H1 2021 followed by Delhi NCR which witnessed leasing activity of 2.0 mn sq.ft. recording a 37% YOY decline, the report said.
While Mumbai and Hyderabad shared third place with approximately 1.4 mn sq.ft absorption, the annual decline in leasing was sharper for Hyderabad at 46% compared to 39% for Mumbai. Pune recorded approximately 0.9 mn sq.ft. leasing while, Chennai saw leasing activity of 1.1 mn sq.ft, it said.
As per the report, in H1 2021 sizeable expansions and consolidations contributed to large deals accounting to about 43.2% of the overall pie, while mid-sized occupiers leasing stood at 27.7%. Bengaluru witnessed the highest share of large deals at 51%, followed by Delhi NCR and Hyderabad, it said.
The report highlighted that Bengaluru, Hyderabad, Mumbai, and Pune have witnessed an increase in new completions compared to the same period last year on account of deferred supply getting completed. Bengaluru has recorded the highest infusion of new supply constituting a 36% share, followed by Hyderabad and Delhi NCR at 28% and 22% shares, respectively, it said.
In H1 2021, the overall vacancy levels increased to 16.2% at the end of June, as supply addition exceeded the pace of leasing activity. Prime locations with limited availability saw stable rents while a few micro-markets have seen a sharper decline as landlords exhibited flexibility to attract new clients.
"2021 started out on an optimistic note with businesses picking up and normalcy in sight However, the second wave of the pandemic and the subsequent lockdowns forced most organisations to reinstate their work from home policy dampening the overall sentiment of the office market. But I believe this is only a temporary pause,” said
“Amid the crisis, we continued to see few large lease deals being signed up in some of the key markets earlier this year. And now with the advent of a strong vaccination drive across the country and India’s office market being fundamentally driven by a booming IT sector, I’m hopeful that we will be able to come back on the earlier growth track sooner than later,” said Anurag Mathur, CEO, Savills India.
“We estimate that the second half could show some improvement, as vaccinations pick up and occupier confidence returns,” said Arvind Nandan, MD (Research & Consulting) Savills India.