Mumbai witnessed net absorption increase for commercial real estate from 0.28 mn sq. ft in Q3 2020 to 0.96 mn sq ft in Q4 2020, according to a JLL report.
Commercial net absorption increased by almost 241 percent in the fourth quarter of 2020 compared to the third quarter, the report said.
East suburbs accounted for 85 percent of the net absorption during the quarter, backed by pre-commitments in new completions. Leasing activity during the quarter was driven by occupiers from BFSI, consulting, IT/ITeS and manufacturing/industrial sectors.
It is important to note that the net absorption in Q4 is still lower when compared to the average quarterly levels witnessed during 2016-18.
The last quarter of 2020 recorded new completions of 1.46 million sq. ft. Two new projects were completed during the quarter. In sync with net absorption, East suburbs accounted for a major chunk (86 percent) of the new completions. Moreover, even on an annual basis, new completions in Mumbai increased in 2020, the report said.
“During the year, occupiers tried to realign their real estate strategies and reduce their real estate cost by renegotiating rents, reducing existing office space and relocating to buildings and / or submarkets with relatively lower rents,” said Karan Singh Sodi, regional managing director, Mumbai, JLL India.
Further, rentals also witnessed marginal increase during the quarter.
Sub-markets like BKC, Eastern and Western suburbs with low to moderate vacancy levels and quality assets enjoyed sturdy rentals. While reduction in headline rents was not a popular phenomenon, landlords have become more flexible in offering extended rent-free periods and the willingness to take up capex on fit outs for the occupiers.
India office market continues recovery
India’s office market continues to recover witnessing a net absorption of 8.27 million sq ft, an increase of 52 percent in Q4 2020 (Oct-Nov-Dec) when compared to Q3 2020. Except for Bengaluru, net absorption of office spaces improved in the other six cities (Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, Pune) according to JLL Research.
Hyderabad led the pack with the highest net absorption in Q4 2020. While the southern markets of Bengaluru and Hyderabad accounted for more than 50 percent of the net absorption in Q4 2020, maximum increase in net absorption (when compared to Q3 2020) was witnessed in Mumbai, Delhi NCR and Chennai. Kolkata also witnessed a strong resurgence albeit on a lower base.
The increase in net absorption was driven by pre-commitments in new completions during the quarter. As many as 56 percent new completions were already pre-committed.
Moreover, office occupiers usually take a longer-term view while making leasing decisions and many occupiers are utilising the current situation to get attractive deals from landlords. While IT/ITeS continues to form a majority proportion, leasing activity is being driven by increased demand for office spaces from sectors such as e-commerce, healthcare and FMCG.
The office real estate market was most impacted as lockdown measures disrupted the way we work. Corporates had to adopt work-from-home as an alternative, which brought in its wake, a new set of possibilities and challenges.