The first half of 2020 has been shaped by the ongoing pandemic, leading to a decline in the total leasing activity of office space in the country by almost 60 percent in H1 2020 as compared to H1 2019, the report titled India Market Watch Office – H1 2020 by Savills India has said.
In the January-June 2020 period, office absorption in six major cities stood at approximately 13.7 mn sq. ft. as compared to 32 million in the corresponding months a year ago. Similarly, the cumulative supply addition was 13.5 mn sq. ft. in H1 2020, compared to 26.6 mn sq. ft. of H1 2019, the report said.
Despite the slowdown, BFSI and IT sectors continued to lead the office space demand across all the cities. Except Mumbai, all other markets in the COVID and lockdown phase remained dependent on three core sectors, namely, BFSI (Banking Financial Services and Insurance), technology and manufacturing. In Mumbai, a substantial 36 percent of total office space absorption came from consulting firms.
Also Read: Office leasing across top 7 cities drops 36% over last year due to COVID-19
Office leasing in MMR declines by 24 percent year-on-year
The Mumbai Metropolitan Region (MMR) remained under lockdown for an extensive period in response to the COVID-19 outbreak, office leasing stood at 2.8 mn sq. ft. in the H1 2020, a decline of nearly 24 percent year-on-year.
Micromarkets like PBD – North Mumbai accounted for nearly 40 percent of the leasing activity, followed by New CBD – BKC and SBD – Eastern Suburbs with 15 percent and 12 percent share respectively.
As supply chain disruptions and labour issues became real bottlenecks in construction related activities for most of April, May and June 2020, incremental office stock creation was negligible. H1-2020 witnessed 0.8 mn sq.ft of additional stock creation- a decline of 70 percent year-on-year.
Despite a drop in the leasing activity, the weighted average rental grew by 2 percent year-on-year in H1 2020.
As far as the sectoral demand is concerned, financial services and technology segments were the biggest contributors -21 percent and 19 percent respectively. Co-working operators accounted for 14 percent of the market activity in H1 2020.
Bengaluru only city to witness high absorption
Bengaluru witnessed an all-time high absorption of 15.6 mn sq. ft. in 2019, highest in the country and the trend continues in H1-2020 with 3.3 mn sq. ft. of activity, which represents almost 35 percent of office space demand in the top 6 cities of the country, the report said.
Of the overall city-wide absorption, approximately 75 percent was concentrated in East Bangalore- Whitefield, Brookefield and Outer Ring Road (ORR). Despite Bengaluru’s comparatively healthy leasing activity in H1-2020 on a country wide level, there has been a drop of over 60 percent demand when compared to H1-2019.Also Read: COVID-19 impact: Net leasing of office space plummets 73% in April-June
The lower demand was on account of business uncertainties during the period of complete lockdown. Few interesting trends have emerged in the city in the first six months of the year. While over 70 percent of the leasing activity came from captive clients, there was a drop in SEZ space take up by about 85 percent, the report said.
On the supply front, on account of the COVID-19 pandemic related issues, there has been an understandable reduction in additional supply in H1-2020, as compared to H1-2019. Around 4.3 mn sq. ft. of additional stock was delivered in the city market in H1-2020, with a majority of this supply being completed in Q2-2020.
Noida overtakes Gurgaon in office leasing
Office leasing in NCR stood at 1.8 m sq ft in the first half of 2020. Office leasing in Noida micro-market has taken over Gurgaon because of the lower rents, quality supply and robust infrastructure including metro connectivity and prominent location for office occupiers, the report said.
Absorption in NCR stood at 10.9 mn. sq. ft. Despite the pandemic, resultant low leasing activity and termination of few rental agreements, rentals in H2 2020, have remained stable compared to H1 2019.
In 2019, absorption in NCR stood at 10.9 mn. sq. ft. However, H1 2020 leasing activity stood at 1.8 mn sq. ft., an annual decline of over 70 percent due to the pandemic and consequential lockdowns that acted as a dampener to the strong momentum in the first half of 2020. On the supply front, in H1 2020, only 0.3 mn sq. ft. of additional supply came up in NCR making the total stock stand at around 118 mn sq.ft.
Office leasing in NCR stood at 1.8 mn sq. ft. in the H1 2020, recording a Y-o-Y decline of 70 percent. Only 0.3 mn sq.ft. of fresh office space supply was witnessed in H1 2020, the report said.
The minimal supply addition was spread across micro-markets like Golf course road extension, NH8 in Gurgaon and Noida expressway. Golf course road extension saw a growth and interest in last few years and will see some new completion in upcoming quarters.
Vacancy levels in NCR have gone up to 20 percent due to a few exits in key micro markets both in Gurgaon and Noida.
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