Key Highlights:
- Net absorption in Office market slower in
Q1 2021 at 5.53 million sq. ft
- Bengaluru, Hyderabad, and Delhi NCR accounted for nearly
80% of net absorption
- 31% of the new completions during the quarter were already pre-committed
- Maximum pre-commitment levels were observed in Bengaluru and Hyderabad
- On a year-on-year (Y-o-Y) basis, net absorption in Q1 2021 stands at 64% of the levels witnessed in Q1 2020
- On a Y-o-Y basis,
new completions across the top seven cities jumped by 56% from the 8.6 million sq. ft recorded in Q1 2020; new completions even
surpassed the average quarterly levels of ~13 million sq. ft witnessed during the historic year of 2019
- Overall vacancy increased from 14.0% in Q4 2020
to 14.9% in Q1 2021\
- Net absorption in Office market slower in Q1 2021 at 5.53 million sq. ft: JLL
-
The overall office market in India witnessed a net absorptiondecrease of 33% in Q1 2021 quarter-on-quarter (Q-o-Q), with 5.53 million sq. ft leased during Jan to March 2021, according to
JLL Office Market Update - Q1 2021. On a year-on-year (Y-o-Y)
basis, net absorption in Q1 2021 stands at 64% of the levels witnessed
in Q1 2020. Bengaluru, Hyderabad and Delhi NCR accounted for nearly 80%
of the net absorption during the quarter. Moreover,
Bengaluru and Delhi NCR were the two markets which witnessed an
increase in net absorption when compared to Q4 2020.
Net absorption dips after a two consecutive quarter rally
City
|
Q2 2020
(mn sq. ft)
|
Q3 2020
(mn sq. ft)
|
Q4 2020
(mn sq. ft)
|
Q1 2021
(mn sq. ft)
|
Growth (%) Q1 2021 over Q4 2020
|
Bengaluru
|
0.45
|
2.72
|
1.37
|
2.22
|
61%
|
Chennai
|
0.10
|
0.21
|
0.86
|
0.37
|
-57%
|
Delhi NCR
|
0.50
|
0.20
|
1.02
|
1.07
|
5%
|
Hyderabad
|
1.18
|
1.54
|
2.83
|
1.09
|
-61%
|
Kolkata
|
Negligible
|
0.023
|
0.15
|
0.04
|
-73%
|
Mumbai
|
0.45
|
0.28
|
0.96
|
0.24
|
-74%
|
Pune
|
0.64
|
0.46
|
1.05
|
0.50
|
-53%
|
Total
|
3.32
|
5.43
|
8.24
|
5.53
|
-33%
|
Source: Real Estate Intelligence Service (REIS), JLL Research
“While
2020 ended on a relatively high note, there was still uncertainty in
the market with respect to resumption of business as usual. Occupiers
continued to adopt a cautious approach and focused on
reassessing their real estate portfolios and long-term commitments. To
add to the woes, increasing fears of a spike in COVID-19 cases in the
second half of March further pushed the occupiers to press pause again
and postpone their real estate decisions,” said
Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.
“As the vaccination drive is gaining momentum and occupiers remain
cautiously optimistic, the year 2021 is expected to witness close to 38
million sq. ft of new completions,
while net absorption is likely to hover around the 30 million sq. ft
with a marginal downward bias. This will be at par with the average
annual net absorption levels seen during 2016-2018,”
he added.
Significant role of pre-commitments, leasing volumes
strong
Pre-commitments
in new completions played a significant role in driving net absorption.
In the first quarter, 31% of the new completions during the quarter was
already pre-committed. Maximum pre-commitment
levels were observed in the southern markets of Bengaluru (51% of the
new completions) and Hyderabad (45% of the new completions). At the same
time, it is important to note that the leasing momentum in some of the
larger markets have remained promising in
the first quarter of 2021. The quarter witnessed gross leasing volumes
of 7.5 million sq. ft across the top seven markets. Interestingly, the
larger market of Mumbai saw a massive jump in leasing volume from 0.5
million sq. ft in Q4 2020 to 1.6 million sq.
ft in Q1 2021. This was majorly driven by select large pre-commitment
deals in upcoming spaces within the BFSI space. Further, Delhi NCR saw a
marginal increase in leasing volumes from 1.9 million sq. ft in Q4 2020
to 2 million sq. ft in Q1 2021.
New completions maintain the growth spree
City
|
Q2 2020
(mn sq. ft)
|
Q3 2020
(mn sq. ft)
|
Q4 2020
(mn sq. ft)
|
Q1 2021
(mn sq ft)
|
Growth (%) Q1 2021 over Q4 2020
|
Bengaluru
|
0.0
|
4.70
|
2.30
|
4.33
|
88%
|
Chennai
|
0.0
|
0.0
|
2.99
|
-
|
-
|
Delhi NCR
|
1.94
|
0.22
|
1.35
|
4.01
|
197%
|
Hyderabad
|
2.38
|
3.33
|
3.72
|
2.20
|
-41%
|
Kolkata
|
0.0
|
0.0
|
0.10
|
-
|
-
|
Mumbai
|
1.45
|
0.30
|
1.46
|
2.18
|
50%
|
Pune
|
0.0
|
0.63
|
0.86
|
0.70
|
-18%
|
Total
|
5.77
|
9.18
|
12.78
|
13.43
|
5%
|
Source: Real Estate Intelligence Service (REIS), JLL Research
New
completions during Q1 2021 were recorded at 13.43 million sq. ft, a
marginal increase of 5% q-o-q. In sync with net absorption, the markets
of Bengaluru, Hyderabad and Delhi NCR accounted for nearly
80% of the new completions during the quarter. On a Y-o-Y basis, new
completions across the top seven cities jumped by 56% from the 8.6
million sq. ft recorded in Q1 2020. Interestingly, new completions even
surpassed the average quarterly levels of ~13 million
sq. ft witnessed during the historic year of 2019.
Vacancy in Grade A office space increases in most markets
City
|
As of June 2020 (%)
|
As of Sep 2020 (%)
|
As of Dec 2020 (%)
|
As of March 2021 (%)
|
Top 7 cities
|
13.1%
|
13.5%
|
14.0%
|
14.9%
|
Source: Real Estate Intelligence Service (REIS), JLL Research
Occupiers
continue to review their real estate portfolios and are adopting
consolidation and optimisation strategies in order to rationalise space
required while minimising costs. The subdued net absorption
levels could not keep pace with new completions. This resulted in
overall vacancy increasing from 14.0% in Q4 2020 to 14.9% in Q1 2021.
Despite the rise in vacancy levels, Bengaluru, Chennai and Pune
continued to hover in single digits.
Rentals across markets remain stable
Office
rents in Q1 2021 remained stable across the major office markets in
India. With vacancy levels still below 15% and limited upcoming Grade A
supply across key markets in the next few years, the
office market in India continues to be tilted towards landlords. Hence,
reduction of headline rents is not a popular phenomenon and rents are
expected to remain range bound in the short to medium term. However,
landlords continue to be accommodative to the
demands of occupiers and are providing flexibility via increased
rent-free periods, reduced rental escalation and fully furnished deals
to occupiers to close deals.
Occupiers remain cautiously optimistic about the future
The
leasing momentum in the upcoming quarters will mainly depend on the time
taken to contain the second wave of COVID-19 cases. However, it is
important to point out a few things that give us confidence
that there is light at the end of the tunnel.
The
increasing attendance in offices across the major markets before the
second COVID-19 wave bears testimony to the confidence and commitment of
corporates to get back to working from office. It is important
that landlords continue to be receptive to the demands of tenants and
offer flexible options, in terms of space as well as value.