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Office leasing across top 6 Indian cities at 10.9 million sq ft in January-June: Report

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Office space leasing across six major cities in India moved at a measured pace as most occupiers held their expansion plans back in the wake of the unanticipated second wave of the pandemic that hit the country earlier this year.

As a result, office leasing activity across these property markets during the first half of 2021 dragged to a six-year low, showed a Savills India report.

During the January-June period, office absorption in six major cities stood at around 10.9 million sq ft, down by 38% from a year ago. The new supply rose 4% on year to 18 million sq ft in the first half of 2021.

Despite the ongoing pandemic, the information technology (IT) occupiers continue to lead the demand followed by the BFSI segment. While the IT sector has increased absorption and holds a 51% of the share, their combined share of around 63% is the same as in the first half of 2020.

“2021 started out on an optimistic note with businesses picking up and normalcy in sight However, the second wave of the pandemic and the subsequent lockdowns forced most organisations to reinstate their work from home policy dampening the overall sentiment of the office market. But I believe this is only a temporary pause. Amid the crisis, we continued to see few large lease deals being signed up in some of the key markets earlier this year,” said Anurag Mathur, CEO, Savills India.

With the advent of a strong vaccination drive across the country and India’s office market being fundamentally driven by a booming IT sector, he is hopeful that the market will be able to come back on the earlier growth track soon.

“The first half of 2021 has been shaped by the second wave of the pandemic, much against the optimism of the initial few weeks. However, despite the slow market during the second quarter and a noticeable annual decline, we estimate that the second half could show some improvement, as vaccinations pick up and occupier confidence returns,” said Arvind Nandan, MD (Research & Consulting) Savills India.

Bangalore, Mumbai and Delhi-NCR constituted around 69% of the total leasing activity during the period across top cities of the country. Bengaluru continued to lead with 4.1 million sq ft of leasing activity representing 37% share followed by Delhi-NCR which witnessed leasing activity of 2.0 million sq ft recording a 37% on-year decline.

While Mumbai and Hyderabad shared third place with around 1.4 million sq ft absorption, the annual decline in leasing was sharper for Hyderabad at 46% compared to 39% for Mumbai. Pune recorded approximately 0.9 million sq ft leasing while Chennai saw leasing activity of 1.1 million sq ft.

According to Savills India, sizable expansions and consolidations contributed to large deals accounting to about 43.2% of the overall pie, while mid-sized occupiers leasing stood at 27.7%. Bangalore witnessed the highest share of large deals at 51%, followed by Delhi-NCR and Hyderabad.

In the first half of 2021, the overall vacancy levels increased to 16.2% at the end of June, as supply addition exceeded the pace of leasing activity. Prime locations with limited availability saw stable rents while a few micro-markets have seen a sharper decline as landlords exhibited flexibility to attract new clients.

Bangalore, Hyderabad, Mumbai, and Pune have witnessed an increase in new completions compared to the same period last year on account of deferred supply getting completed. Bangalore has recorded the highest infusion of new supply constituting a 36% share, followed by Hyderabad and Delhi NCR at 28% and 22% shares, respectively.

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