In the backdrop of COVID-19 induced economic slowdown and slow decision making by occupiers, office gross absorption across the top seven cities touched 16.7 million square feet, plunging 36 percent year-on-year, Colliers International said in a report.
While leasing during 2020 is likely to be affected by a wait-and-watch approach by occupiers, NCR is likely to overtake Hyderabad to rise to the second position by end of 2020, the report stated.
Majority of the deals expected to take place in Q2 2020 were pushed to subsequent quarters, or are being reconsidered, as occupiers focus on business continuity plans during the lockdown and workplace readiness and gradually look towards reopening offices.
On the supply front, the first half of the year saw about 24.1 million sq feet of project completions, a 2 percent increase, led by project completions in Bengaluru, Delhi-NCR and Hyderabad, Colliers International said in the report.
“Office market has been the flag bearer of consistent and highest returns amongst all real estate asset classes in India for quite some time; the market today needs to read the occupiers’ challenges and customise solutions for a win-win coexistence”, said Sangram Tanwar, Managing Director, mid- India at Colliers International.
In Bengaluru, gross absorption drops by 33 percent as occupiers hold on to leasing decisions.
Leasing during H1 2020 dropped about 33 percent year-on-year to 5.4 million sq feet, from the corresponding period last year. A majority was due to the loss of activity in Q2 2020, led by the government-imposed lockdown that affected the city, the report said.
While some deals in the pipeline have been postponed, the city continued to see some large deals, as planned. On the supply front, about 6.9 million sq feet became operational during H1 2020, a drop of 13 percent year-on-year, the report said.
“Market fundamentals in markets with low vacancy levels have not changed much in terms of rentals and it continues to be developer-centric, however, we have started witnessing some flexibility from developers. In the short run, delayed decision making, contract re-negotiations, measurement and effectiveness of work from home seems to be the underlying trends. Market fundamentals look positive and we do not foresee much change in the long run”, said Arpit Mehrotra, Managing Director, South India (Office Services) at Colliers International.
In Hyderabad, leasing plunged by 62 percent year-on-year during the first half of 2020 on account of slower uptake of office space. However, the prospects of the city remain strong, especially since 3.9 million sq feet of pre-commitments have been recorded in H1 2020. Supply during H1 2020 was about 4 million sq feet, a drop of almost half.
Gross leasing down by 27 percent to 3.2 mn sq ft in Delhi-NCR.
During H1 2020, gross absorption fell 27 percent year-on-year to 3.2 million sq feet. Majority of the leasing activity was led by Noida that accounted for 56 percent of the total leasing in the region.
"We foresee the current slowdown in the office market as a temporary setback due to the pandemic. We foresee the markets to pick up in H2, 2020 as most transactions for Q2 have been pushed to the second half and majority of occupiers have now started taking decisions about their real estate portfolios”, said Sanjay Chatrath, Managing Director, North India at Colliers International.
In Mumbai, leasing fell by 53 percent year-on-year to 1.9 mn sq ft as occupiers postpone decision making.
Mumbai witnessed the second-steepest fall in leasing during H1 2020 as the city witnessed an extended lockdown due to a high number of COVID-19 cases. The leasing fell 53 percent year-on-year to about 1.9 million sq feet, as a majority of the workplaces in Mumbai continue to remain closed. Accordingly, supply during H1 2020 fell 37 percent year-on-year to 1.5 million sq feet in the city.
“The pandemic has made a short to mid-term impact that is leading occupiers to adopt measures like work from home, working in shifts at office, de-densification of workplaces. We see large MNCs already gearing up, strategizing for the future workplaces to make them more advanced in terms of health and safety standards.
Developers who have been thinking ahead have incorporated such features or wellness certifications in their projects, bound to be preferred by occupiers,” said Animesh Tripathi, Senior Director, Office Services (Pune) at Colliers India.
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