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India office leasing continues recovery; Q4 absorption up 52% sequentially

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MUMBAI: India’s office market has started to make steady progress towards a sharp bounce back with rising space pick up brushing aside the hyped concerns of the emergence of work from home model.

While the entire year’s net leasing declined 44% to 25.82 million sq ft, last six months have clearly helped the market to move towards rebound. Driven by Mumbai, Chennai and Delhi-NCR’s maximum increase in net absorption, the country’s office space leasing recovered to 8.27 million sq ft in December quarter, up 52% sequentially.

Net absorption in Mumbai rose 243%, Chennai 310% and in Delhi-NCR 410% sequentially during the quarter. Except for Bengaluru, net absorption of office spaces improved in the other six key cities including Mumbai, Hyderabad, Chennai, Delhi NCR, Pune and Kolkata, showed data from JLL Research. Hyderabad led the pack with the highest net absorption in the fourth quarter.

The increase in net absorption was driven by pre-commitments in new completions during the quarter as 56% new completions were already pre-committed. Moreover, office occupiers usually take a longer-term view while making leasing decisions and many occupiers are utilising the current situation to get attractive deals from landlords.

“The year 2019 saw historic highs with net absorption crossing 46 mn sq ft. In 2020, net absorption dipped by 44% when compared to 2019. However, a comparison to the average annual net absorption levels between 2016 and 2018 elucidates a more realistic and thus resilient nature of the Indian office market. Led by the southern markets of Hyderabad, Chennai and Bengaluru, net absorption levels in 2020 reached 81% of what was observed between 2016 and 2018,” said Ramesh Nair, CEO and Country Head, JLL India.

While IT/ITeS continues to form a majority proportion, leasing activity is being driven by increased demand for office spaces from sectors such as e-commerce, healthcare and fast-moving consumer goods (FMCG).

The southern markets of Bengaluru and Hyderabad accounted for more than 50% of the net absorption in the fourth quarter. In another sign of a continued recovery, new completions during the quarter were recorded at 12.78 million sq ft, a sequential increase of 39%.

“The southern markets of Hyderabad, Chennai and Bengaluru accounted for a major chunk or 71% of the total new completions in Q4 2020. On an annual basis, new completions across the top 7 cities dipped by 30% to about 36.34 million sq ft in 2020 as compared to 51.62 million sq ft in 2019. This being said, it is important to point out that new completions surpassed the average annual levels of 34million sq ft witnessed during 2016-18,” said Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.

He expects the year 2021 to witness close to 38-40 million sq ft of new completions, while net absorption is likely to hover around 32-35 million sq ft.

Office rents in 2020 remained stable across the major office markets in India. With stable rental values, range-bound vacancy levels and limited upcoming Grade A supply across key markets, the office market in India continues to be landlord favorable. Hence, rents are expected to remain stable in the short to medium term. However, landlords are considering the current situation and have become more accommodating to the demands of occupiers.

Landlords across markets have become more flexible in providing increased rent-free periods, reduced rental escalation and fully furnished deals to occupiers which reduces their net effective rental outgo.

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