Office market net absorption up 48% in third quarter of 2021: JLL

New completions in Q3 2021 were recorded at 10.89 million sq ft, a drop of 7 percent when compared to Q2 2021 and a 19 percent increase when compared to the same period the previous year.

With the addition of nearly 11 million sq ft of space, the Grade A office stock in the top seven cities under consideration crossed 660 million sq ft. Almost 35 percent of new completion was pre-committed.

The robust new completion level in Q3 2021 is indicative of the fact that construction activity was not hugely impacted by the second wave. Developers however, continued to focus on leasing of existing projects. The markets of Bengaluru, Delhi-NCR and Hyderabad accounted for about 73 percent of the total completion in the quarter. Almost 45 percent of the new supply in these cities were pre-committed, the report said.

Vacancy levels increase The net absorption could not keep pace with new completions as occupiers are still cautiously evaluating their real estate portfolios and optimising cost to ensure business continuity thereby increasing the vacancy levels by 60 bps.

With limited pre-commitments in the newly added supply especially in the markets of Bengaluru, Mumbai, Hyderabad, and Delhi NCR overall vacancy levels increased. Despite the rise in overall vacancy levels, the markets of Chennai and Pune continued to hover in single digits. This augurs well for a strong rebound in these markets as business conditions gradually improve in the coming quarters.

Due to a steady pipeline of assets coming online, the demand-supply gap has momentarily widened. Nevertheless, with demand expected to pick up in the coming quarters, vacancy is likely to return to sub 15 percent levels, the report said.

Rentals continue to remain range bound

_{Office rentals remained stable across the major office markets in India in Q3 2021. However, landlords continue to be accommodative to the demands of occupiers and support deal closures. With vacancy levels already hovering at around 16 percent, the next few quarters will be critical in terms of pick-up in demand while maintaining the market buoyancy as planned supply enters the market.}

_{Positive outlook for Office Market Strong market fundamentals, positive economic growth and healthy supply pipeline is likely to bring back the leasing momentum to pre-pandemic levels in 2022 in case there are no further lockdowns.}

_{“The office market has been progressive in Q3 2021 and this momentum is expected to continue in the coming quarters as the demand for office spaces will continue to expand backed by consolidation and expansion of office spaces by occupiers and increasing demand for satellite offices. While the net absorption in the top seven markets was at approximately 5.8 million sq ft in Q3 2021, the Gross Leasing Volume (GLV) touched 6.3 million sq ft during the quarter, an increase of 25 percent Q-o-Q which indicates a sustained resurgence in demand.}

_{“The larger markets of Delhi NCR, Mumbai, and Pune contributed to 62 percent of the total volumes recorded in the quarter. Among the top 7 cities under review, Pune witnessed heightened leasing activity compared to the previous quarter followed by Chennai,” said Radha Dhir, CEO and Country Head, India, JLL.}

_{Although the leasing activity gained momentum in Q3 2021, it is yet to reach the pre-pandemic levels measured in terms of quarterly average seen in 2019 and Q1 2020.}

_{“Taking cues from 2020, the last quarter of the year is expected to witness increased momentum in the office space. However, net office absorption across seven major cities in 2021 is unlikely to touch net absorption recorded in the previous year (25.6 million sq ft) with about 15 million sq ft being recorded in the first three quarters of 2021. This being said, IT/ITeS occupiers continue to drive leasing and form a majority proportion of demand. With the unlocking of the economy, several IT firms are keen to bring back their employees to the workplace,” said Samantak Das, chief economist and head research at REIS, India, JLL.}

_{“Around 35 million sq ft of Grade A office space was completed in YTD (Jan-Sept) 2021 which is a 53 percent increase when compared to the same period last year. The growth pace of new completions show that developers are confident of a strong revival in office leasing activity once business as usual is reinstated,” he added}