Attributed to said Dr. Samantak Das, chief economist

 Attributed to said Dr. Samantak Das, chief economist
and head research and REIS, India, JLL

Uncertainty, resilience, and growth prompt status quo of policy rate

The unexpected global headwinds propelled by the new Covid-19 variant to the economic recovery prompted Reserve Bank of India to maintain the policy rates. RBI has kept the policy rate unchanged for the ninth time as it has been trying to support growth and rein inflation. Indian economy grew better than expected by posting 8.4% growth during Q2 FY22 indicating the strength of the economy. 

The accommodative stance and gradual normalisation measures also signal that economy is on the firm path of growth. Indian economy has demonstrated its resilience to uncertainty in the past and it is expected deal with it more prudently in future.

The growth registered by the real estate sector in Q3 2021 is likely to continue and to end this year on a positive note. In Q3 2021, residential sales witnessed an upward trajectory, increasing by 65% on a sequential basis. This sector is expected to benefit from a regime of low mortgage rate, coupled with duty waivers, realistic property pricing and attractive offers leading to affordable synergy.

Indian data center industry capacity to double by

 Indian data center industry capacity to double by 2023: JLL 

• Industry capacity expected to double from 499MW in H1 2021 to 1008 MW by 2023
• 92% year-on-year growth in third party data center (colocation) industry capacity addition at 51.8MW during H1 2021; Mumbai accounted for 49% share of the capacity addition
• Demand for colocation space is equivalent to 90% of supply addition during H1 2021

Note: GW* and MW*- indicates IT design power load

India’s data center industry is expected to double capacity by 2023, says JLL. Capacity will exceed 1GW by 2023, driven by strong digitalisation, rising cloud adoption and ambitious growth plans of data center operators, according to JLL’s ‘H1 2021 India Data Center Market Update’ released today. 

Nationwide, the acceleration of digitalisation has forced enterprises to scale up their IT infrastructure. As a result of digital upgrades, a strong demand for colocation/cloud facilities, which offer scalability, security, and connectivity at lower costs, has been witnessed across India. Additionally, investors and global data center players have increased their commitment during the last six months in the India market by announcing joint ventures to meet expected demand. 

“The demand momentum which picked up pace in 2020, continues to grow unabated. The Indian data center industry witnessed 46.4 MW absorption during H1 2021 - equivalent to 90% of supply addition during the period (H1 2021), indicating robust absorption growth. Demand has been expanding rapidly due to increasing digital usage emerging from distributed workforce, growing data security concerns and business disruptions. Banking and financial services are adopting hybrid options to meet digital growth. Home-grown video and gaming platforms in midst of robust user growth are also fuelling the data center industry demand. Furthermore, telecom players are formulating the roll out of 5G which is expected to drive exponential growth in data consumption,” said Rachit Mohan, Head, Data Center Advisory – India; Co-Head, Office Leasing Advisory – Mumbai, JLL.

“Global investors and data center  players have increased their commitment during the last six months, announcing joint ventures with operators to setup sites. Investment commitments to the tune of USD 3 billion highlight the growth potential, with the data center industry expected to double its capacity and cross the 1GW* mark by 2023. Mumbai which currently accounts for 45% of the total capacity is expected to further add 267MW between now and 2023. Various states have also been providing incentives for data center industry as they want to join the next leg of technological change,” said Dr Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.

Data center operators are adopting large land acquisition strategies to fulfil the long-term requirements of hyperscalers (large cloud players and occupiers with massive computing requirements). These operators would provide occupiers with flexibility in terms of availability zones, fiber pathways and power provisions required for large scale expansions in less time. Players are also adopting strategic alliances by investing in new submarine cables to meet the growing demand.

The telecom industry has been gearing for rolling out the 5G services with three providers starting field trials. The trend of sustainability has been gaining pace as tie-ups for green energy are being inked.

Dr. Samantak Das, Chief Economist and Head Research & REIS, JLL on the monetary

                             Dr. Samantak Das, Chief Economist and Head Research & REIS, JLL
                                            on the monetary policy that was announced today

RBI has upheld its accommodative stance and kept the repo rate unchanged at 4% during the monetary policy committee meeting held today. ‘Strong and sustainable growth’ continues to remain the cornerstone of the Central Bank’s philosophy while it takes into cognizance the current rising inflationary trends. Citing the high inflation levels to be transitory in nature driven by short term supply side constraints, the Bank draws attention to the promising high frequency indicators such as consumption, investment and external demand which are regaining traction as the economy is opening up in a phased manner.

 With the concerns of the second wave ebbing supported by aggressive ongoing mass vaccination, broad-based policy support, normal monsoons, likely easing of supply side issues, RBI maintains its growth forecast for FY 21-22 at 9.5%. As the economy gradually gains foothold in the aftermath of the receding impact of the second wave, RBI has indicated greater confidence in the resilience of the Indian economy.

 Green shoots in the residential sector have emerged in tandem with the gradual improvement in the economic environment as businesses reopen. Prevailing lower home loan rates supported by RBIs policy rate stance, stable prices and attractive payment plans and schemes of developers are aiding the translation of pent-up demand into sales. If the downward trajectory in COVID-19 cases is sustained, the sector is expected to make a healthy recovery in H2 2021.

Housing sales may see a spurt of

Key Highlights:

• Prediction of Normal rainfall in 2021 augurs well for the Residential segment
• Good monsoon will support RBI in keeping the repo rate down, thereby supporting the low-interest rate regime and keeping the home loan rates benign
• House hunting likely to re-start extensively in the current and next few months as buyers look to evaluate projects based on waterlogging, seepage and related factors
• Normal monsoons do support farm and rural incomes and thus lower the defaults for such loans and this positively impacts the banks’ financial results and provides impetus to the overall financial sector health 
  
  Housing sales may see a spurt of 20-35 %
  in the upcoming monsoons months: JLL
  
• 
  
• Prediction of Normal rainfall in 2021 augurs well for the Residential segment
• Good monsoon will support RBI in keeping the repo rate down, thereby supporting the low-interest rate regime and keeping the home loan rates benign
• House hunting likely to re-start extensively in the current and next few months as buyers look to evaluate projects based on waterlogging, seepage and related factors
• Normal monsoons do support farm and rural incomes and thus lower the defaults for such loans and this positively impacts the banks’ financial results and provides impetus to the overall financial sector health
  

With the macro economic factors this year expected to mirror 2020; there is a likely possibility of  a 20-35 % spurt in housing sales in the monsoon months in 2021 as was seen last year as per a recent study by JLL. While fuel prices have risen in recent months along with rising inflation, the RBI has retained its accommodative stance and kept the repo rate unchanged. With the expectation of moderating inflationary pressures as supply side disruptions are sorted and with home loan rates sticking to their historic lows since last year, the support structure for sales of homes seems intact this year in the upcoming monsoon season as well as the approaching festive season, the study further reveals.

As seen in 2020, with the decent rainfall recorded across the country, there was ample headroom for the RBI to keep the key rates at record lows since the inflation was under check. This encouraged a number of people to come forward and buy homes. Now in 2021 as well, the home loan rates can be expected to remain close to their historic lows, providing a good opportunity for the residential realty sector to do well in the rainy season.

Post the unlocking process which followed the first COVID wave last year, the healthy monsoon ensured that the inflation fell to well below 6% by December 2020 and remained so till the end of FY 2021. This provided the RBI leeway in keeping the repo rate at historic low levels, thereby helping the commercial banks in maintaining home loan rates at near-record lows.

Dr. Samantak Das, Chief Economist and Head Research & REIS, India, JLL said, “The residential real estate sector can expect buoyancy in the sale of residential properties this year in the monsoons and the upcoming festive season, just as last year where there was a 34% jump in the corresponding period as compared to the immediately preceding quarter. The jump in sales can be 20-35% this year depending on how the pandemic shapes out. If there is a third wave in the next few months, other economic disruptions could impact sales growth negatively which may then hover around the lower range of our expectations.”

As we have seen over the past two years, when rainfall is ample, the inflation continues to be within manageable levels which allowed enough headroom to the RBI to keep the policy rate low. Even in 2020 when the pandemic disrupted supply chains, the rising inflation quickly moderated post the unlocking with the good monsoon acting as the buffer towards sustained inflationary pressure. Even this year when there is a prediction of normal monsoons, there is a likelihood of the trend to continue as seen in the last two years and the RBI should be able to keep the Repo Rate at the current levels. This will allow the commercial banks to offer home loans at the existing attractive rates which will continue to drive housing sales. With most  home purchases supported through home loans, the lower home loan interest will continue to have a positive impact on EMI outflows. Interestingly, we can expect house hunting to start in a major way in the current and coming few months, especially in regions like Mumbai Metropolitan Region and Pune, as buyers look to evaluate projects and residential corridors based on waterlogging, seepage, low lying areas prone to flooding and other issues to eliminate locations or projects. The upcoming festive season will also act as a catalyst during this period to support housing sales.

It is worth noting that the housing credit growth has consistently been in the positive territory since 2019 and only saw a negative growth in April 2020 which coincided with the period of the most stringent lockdown during COVID. It is pertinent pointing out that housing credit growth showed sharp spikes in the months immediately following the monsoon season both in 2019 as well as in 2020, which reflects that buying sentiment shows an upward trend following the monsoon season. In a market driven by stable pricing, attractive offers, low interest rates and changing homebuyer preferences, a good monsoon will keep the sentiment positive.

Normal monsoons also result in a good crop which ensures that farm and rural loans, which form a sizeable chunk of priority sector lending and also bad debts, have lower defaults and this positively impacts the banks’ financial results going forward. This will provide further impetus in the financial sector, particularly PSU banks.

A better rural demand, spurred by good rainfall, will also help the sales of white goods like TV, refrigerator, etc. Generally, a positive domestic consumption sentiment would translate into higher capital investments as well by households. Also, if inflation is kept under check it allows for a portion of the household income to be saved. Given that a good monsoon will support RBI in keeping the repo rate down and maintaining an accommodative stance, a low-interest rate regime will be seen in the country going forward.

•  

New launches in Mumbai residential market

Key Highlights:

• Sales in the city remained at similar levels of Q1 2021, transactions were concentrated in the price segment of INR 50 lakh to INR 1 crore, which accounted for 40% of the sales during the quarter
• Eastern suburbs accounted for the majority of new launches with 25%, followed by Western suburbs II (comprising of Malad, Kandivali, Borivali and Dahisar) with 22%
• Thane and Navi Mumbai combined reported close to 50% of sales
• Compared to Q1 2021 capital value of residential units in the city remained stable in Q2 2021
• Most of the new launches in Mumbai were in the affordable and mid segment (ticket size upto INR 2 crore), forming 84% of the launches during the quarter
• Mumbai has consistently been the largest contributor to sales over the past five quarters and the trend continued in Q2 2021 as well
  

                            New launches in Mumbai residential market                                                 increased by 33% in Q2 2021: JLL

New launches in the Mumbai residential market increased by 33%, from 4,616 units in Q1 2021 to 6,143 units in Q2 2021, as per a recent study by JLL. While sales in the city remained at similar levels of Q1 2021, transactions were concentrated in the price segment of INR 50 lakh to INR 1 crore, which accounted for 40% of the sales during the quarter.

Eastern suburbs accounted for the majority of new launches with 25%, followed by Western suburbs II (comprising of Malad, Kandivali, Borivali and Dahisar) with 22%. In terms of sales, Thane and Navi Mumbai combined reported close to 50% of sales. When compared to Q1 2021 capital value of residential units in the city remained stable in Q2 2021.

 

Mumbai – trends in launches & sales

Further, most of the new launches in Mumbai were in the affordable and mid segment (ticket size upto INR 2 crore) and formed 84% of the launches during the quarter. In sync with demand, developers are expected to focus on these price segments.

Karan Singh Sodi, Regional Managing Director, JLL India said, “The increase in sales presents clear signs of demand and buyer confidence coming back to the market. This has been on the back of historically low home loan interest rates, stagnant residential prices, lucrative payment plans and  freebies from developers and government incentives such as the reduction of stamp duty.”

Mumbai has consistently been the largest contributor to sales over the past five quarters and the trend continued in Q2 2021 as well. Almost one-third of the sales volume was contributed by the city during the quarter.

Residential sales across the top seven cities in Q2 (April-June) 2021 increased by 83% as compared to Q2 2020, across the top seven cities. According to JLL’s Residential Market Update – Q2 2021 released recently, this was mainly due to low base effect, less stringent lockdowns, and accelerating vaccination drives during Q2 2021, demonstrating improved resilience in the market. During the first wave of COVID-19, residential sales dropped by a record 61% quarter-on-quarter to 10,753 units in Q2 2020. However, the impact of the second wave has been limited with sales in Q2 2021 dipping by 23% to 19,635 units.

Dr. Samantak Das, Chief Economist and Head Research & REIS, India, JLL said “The residential sector displayed improved resilience in Q2 2021 when compared to Q2 2020. There is no denying the fact that the second COVID-19 wave dented the market following a good recovery curve. However, the impact was muted when compared to the same period last year. Most of the changes observed in the sector have been structural in nature and demand for homes is only expected to increase. The RBI is expected to hold policy rates at the existing historically low levels, while prices will remain mostly range bound. The resultant affordable buoyancy will continue to attract fence sitters and serious homebuyers,”.

“If the downward trajectory in COVID-19 cases is sustained, the sector is expected to make a healthy recovery in the second half of 2021,” he added.

 Established developers will continue to run the show

Structural reforms within real estate in the last few years started the process of weeding out smaller, unorganised developers from the market. The COVID-19 pandemic tilted the scale further in favour of established developers. Homebuyers have also become even more cautious in affecting their home purchase decisions. There is an increased preference and willingness to pay a premium for projects by developers with an established track record.

 New launches expected to go up in H2 2021

On average, new launches of more than 35,000 units were witnessed every quarter between Q1 2019 and Q1 2020. In the COVID-era (Q2 2020 – Q2 2021), this has decreased to ~23,000 units.

Sustained growth of the sector in the second half of 2021

There is no denying the fact that the second COVID-19 wave dented the market following a good recovery curve. However, the impact was muted when compared to the same period last year. Most of the changes witnessed in the sector have been structural in nature and demand for homes is only expected to increase. Importantly, lockdown restrictions across cities are being eased and the vaccination drive is gathering pace. If the downward trajectory in COVID-19 cases is sustained, the sector is expected to make a healthy recovery in H2 2021.

Dr. Samantak Das, Chief Economist and Head Research

 Dr. Samantak Das, Chief Economist and Head Research & REIS, JLL

 

The Model Tenancy Act is going to give a guiding framework to all states to make their respective Tenancy Acts contemporary. Current Acts will give way to the new ones where uniformity will prevail, and it will give confidence to homeowners for renting out of existing vacant properties. Also, if the states implement the Tenancy Act in true letter and spirit of the Model Act, we will inch towards institutionalisation of rental housing market. In case of RERA, the central Act helped states like Maharashtra to make MahaRERA successful to a large extent. In similar lines, we may expect Tenancy Acts in states to become more efficient in providing level playing field to both owners and tenants.

Indian data center sector to require

Key Highlights:

• Expected to add 560 MW* capacity during 2021-23
• Colocation data center industry is expected to grow exponentially to reach 1,007 MW by 2023 from its existing capacity of 447 MW
• Mumbai and Chennai are expected to drive 73% of the sector’s total capacity addition during 2021-23, Hyderabad and Delhi NCR to emerge as new hotspots
• India’s colocation data center industry witnessed unprecedented absorption of 102 MW during 2020, notching higher absorption than most key markets of Europe and America
• India’s renewable energy capacity at 90 gigawatts accounts for 25% share of the installed power capacity and provides tremendous scope for development of green data centers

Indian data center sector to require $3.7 billion of investment by 2023 to meet demand: JLL

 ~Expected to add 560 MW* capacity during 2021-23

 Colocation data center industry is expected to reach 1,007 MW by 2023

• Mumbai and Chennai are expected to drive 73% of the sector’s total capacity addition during 2021-23, Hyderabad and Delhi NCR to emerge as new hotspots

India’s data center sector will require investment of $3.7 billion over the next three years in order to fulfill the 6 million sq. ft greenfield development opportunity for the industry, a JLL report titled ‘2020 India Data Center Market Update’ stated.

“India’s colocation data center industry witnessed unprecedented absorption of 102 MW during 2020, notching higher absorption than most key markets of Europe and America. Fueled by longer-term trends of rising cloud adoption, increasing digitalisation and progressive legislation, we anticipate increased demand for colocation space nationwide. Rising demand led data center operators and developers to pursue ambitious expansion plans, while some adopted the acquisition route to enter Indian markets, which we expect to continue. Colo capacity grew by around 28% to reach 447 MW in 2020 from 350 MW in 2019” said Rachit Mohan, Head, Data Center Advisory (India), JLL.

As the data centre landscape continues to evolve, the industry is expected to grow exponentially to reach 1,007 MW by 2023 from its existing capacity of 447 MW. With growing reliance on digital connectivity, demand is likely to ramp up further due to the imminent rollout of 5G rollout, IoT-linked devices, data localisation and cloud adoption.

Mumbai and Chennai are expected to drive 73% of the sector’s total capacity addition during 2021-23, while other cities like Hyderabad and Delhi NCR emerging as new hotspots.

Robust expansion by global cloud players in the established markets of Mumbai and Pune continues owing to prevailing infrastructure, while new markets like Hyderabad are gaining momentum in this space.

“India’s data center industry is expected to add 560 MW during 2021-23 leading to a real estate requirement of 6 mn sq ft. The supply addition will be complemented by densification of racks and servers, sustainable energy sourcing and use of indigenous resources. Rising demand is leading operators to pursue ambitious expansion plans, while some are adopting the acquisition route to enter Indian markets. Various policies and reforms brought in by the Government with an aim to turn India into a ‘Global Data Hub’ has provided necessary measures to achieve this goal,” said Dr Samantak Das, Chief Economist and Head of Research & REIS (India), JLL. 

The increasing usage of e-commerce, EdTech and digital transactions placed the existing IT infrastructure of enterprises under pressure. Overall data usage increased by 36% in 2020 due to increased usage of smartphones and fixed wireless access as per Nokia Mobile Broadband India Traffic Index 2021. Enterprises have been upgrading their IT infrastructure by adopting hybrid models, given their budget constraints. Technology trends like 5G rollout, IoT-linked devices and AI will also result in stronger growth in demand.

According to JLL, the rapid growth of the data center industry has led to increasing energy consumption and environmental impact. Increasingly, global cloud players setting up bases in India aim to reduce their carbon footprint and are looking at data centers that provide sustainable energy alternatives and are entering renewable energy power contracts. India’s renewable energy capacity at 90 gigawatts accounts for 25% share of the installed power capacity and provides tremendous scope for development of green data centers.

 

RBI maintains ‘status quo’ to cushion the economy in

         Dr. Samantak Das, Chief Economist and Head of Research & REIS, JLL India.

RBI maintains ‘status quo’ to cushion the economy in the light of the pandemic resurgence; low mortgage rates to provide room for continued residential real estate growth

 

“The resurgence of the pandemic and resultant concerns of its impact on economy and businesses demanded a resilient approach. The Central bank has responded by taking an accommodative stance, kept the repo rates unchanged. The health of the economy has now become more contingent on the progress of vaccination and control of pandemic. In such a scenario, holding the repo rates at 4% is likely to cushion the impact on economy due to intermittent and regional lockdowns. The government’s decision to retain the inflation target of 4% with a tolerance band of +/- 2 percentage points for the coming five years provides continuity to the stance of the monetary policy committee.

Demand for residential real estate has revived as homebuyers took advantage of the lowest mortgage rates along with realistic pricing and various freebies and options rendered by developers. Residential sales in Q1 (Jan-March) 2021 recovered to more than 90% of the volumes witnessed during pre-Covid times across the top 7 cities. The sustained growth in sales presents clear signs of demand and buyer confidence coming back to the market. The recent surge in the spread of the pandemic is likely to impact the home buying sentiment for a few months. However, we believe that overall residential sales are likely to surpass the pre-Covid levels in the coming quarters.”

Net absorption in Office market slower in

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

• 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

The overall office market in India witnessed a net absorption decrease 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 [2] 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.