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Net absorption of office space to remain stable at 20 million square feet in 2021: Colliers

With new demand likely remaining slow in H1, Grade A office rents may decline in 2021, with overall rents dropping by 3.7% this year and showing improvements from 2023 onwards, the report by Colliers said

As COVID-19 drags into 2021, net absorption of office space is expected to remain stable at 20 million sq ft and technology firms are likely to lead demand in Bengaluru, Hyderabad, Pune, Gurgaon and Noida, where some firms have announced plans to ramp up hiring, a report by Colliers has said.

In 2021, Colliers forecasts net absorption of 20 million sq feet (1.8 million sq meters), similar to 2020. After seeing a 42.8% decline in demand in 2020, occupiers will optimise their portfolios in 2021 and 2022 in keeping with global trends, it said.

The report also noted that with new demand likely remaining slow in H1, Grade A office rents may decline in 2021, with overall rents dropping by 3.7% this year and showing improvements from 2023 onwards, the report said.

During 2020, office leasing activity remained sluggish as the uncertain economic environment and business conditions brought on by COVID-19 nudged occupiers to postpone their decisions and reassess their real estate portfolios. Net absorption across major markets in India was 20.6 million square feet (1.9 million sq meters), a decline of 42.8% YoY. Occupiers focused on portfolio optimization by relocating, consolidating and downsizing.

About 45% of the demand was led by technology firms with larger companies still considering expansion in recently completed projects with better wellness and hygiene standards.

“Technology companies are expanding and are likely to fuel demand for office space over the next two years. Over the next three years, technology companies dealing with digitization, artificial intelligence, machine learning and robotics ought to expand led by increasing demand for such services. We expect tech companies to continue to look at markets like Bengaluru, Hyderabad and Chennai,” said Arpit Mehrotra, Managing Director, Office Services (South India) at Colliers.

Despite concerns about potential oversupply in select micro-markets and muted demand, new supply was at 38.1 million square feet (3.5 million sq meters) in 2020, a 2.4% decline YoY. Bengaluru, Hyderabad and Delhi NCR drove the bulk of new supply.

Occupiers approaching lease expiration are undertaking portfolio optimization efforts by relocating to cheaper and/or smaller offices. For perspective, in 2021, leases expiring total about 81 million sq feet (7.5 million sq meters), with 65% of these being smaller than 10,000 sq feet (929 sq meters), it said, adding Delhi-NCR is also witnessing this trend with occupiers moving to locations such as Golf Course Extension Road in Gurugram.

During 2020, flexible workspace operators leased about 3.0 million sq feet (278,707 square meters) of space, accounting for 9% of the total leasing. The operators are expecting greater traction in demand for their centres as occupiers look at stop-gap arrangements while optimizing their portfolio.

Occupiers are implementing hub-and-spoke models with space closer to residential areas, and flexible workspace can help meet this need, it said.

“Occupiers will continue to look for flexibility from developers as employees gradually return into offices in H1 2021. Managed office and enterprise solution players will play a key role in the overall take-up of offices spaces throughout 2021. Pragmatic migration towards a hybrid office portfolio should gain momentum amongst the occupier community," said Bhupindra Singh, Managing Director, Regional Tenant Representation (India) at Colliers.

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first published: Feb 25, 2021 04:19 pm