India’s net office absorption stood at 4.39 million sq ft in the second quarter of 2021, a 32 percent year-on-year growth in major cities, real estate services company JLL has said.
The net absorption was, however, 16 percent lower than the previous quarter following the strict restrictions imposed by states during the second coronavirus wave.
The quarter-on-quarter drop was, however, lower than 61 percent during the same period last year, when the first wave hit, JLL said in a report.
“Compared to the big dip that we had seen in the Q2 2020 due to the first wave, the market showed more resilience in Q2 2021 when hit by the second wave,” Samantak Das, Chief Economist and Head Research & REIS, JLL.
“The strength displayed by the office market in India since the pandemic owes much to the fact that the IT/ITeS sector has been largely unaffected by the economic downturn.”
In terms of locations, Navi Mumbai, Thane and SBD North (mainly Andheri-Kurla Road) were the preferred locations, driving leasing activity in Mumbai.
In the June quarter, these three submarkets accounted for nearly 80 percent of the overall net absorption. Sector-wise, BFSI, manufacturing and flex space operators dominated leasing activity, the report said.
The quarter also saw robust new completions of 2.54 million sq ft, with three new projects getting completed. As new completions outpaced net absorption, the vacancy rate increased by 110 bps to 16 percent.
At the same time, overall average city rents in Q2 2021 remained range bound at Rs 124–125 per sq ft per month.
“As demand for flex spaces grows, flex space operators are expanding their presence in the city. Overall city rents have been stable barring a marginal drop in a few micro-markets,” said Karan Singh Sodi, Regional Managing Director, JLL India.
Rents were expected to witness steady growth once the market stabilised and recovered from the impact of COVID-19
IT/ITeS occupiers accounted for a majority of the office leasing activity in 2020 at around 50 percent, Das said. “In 2021, we expect the IT/ITeS sector to remain the key occupier group while demand from emerging sectors such as e-commerce, manufacturing and healthcare is likely to increase further,” he said.
Pre-leasing commitments have been largely intact and downsizing activity by larger corporates has been limited. Occupiers are holding on to spaces with the belief that occupancy at offices will start to improve as the country gets vaccinated.
While a timeline for the return to office is still uncertain, the next two quarters are crucial. If the country can keep the third wave in check and ensure that most of the active workforce gets vaccinated, the shift back to office will be more feasible and sustainable.
With expected ramp up in vaccination and a gradual drop the cases, the second half of the year is expected to witness an increased momentum in office-space leasing.
Net office absorption in 2021 is likely to remain flat or may grow slightly from the 25.6 million sq ft achieved in 2020, in case there are no further lockdowns. However, it will remain below the average annual levels of around 35 million sq ft witnessed over 2016-19, the report has said.