India’s office market has seen a net absorption of 8.27 million sq ft, an increase of 52% in Q4 2020 (October-December) when compared to Q3 2020, as more offices began returning to work. Except for Bengaluru, net absorption of office spaces improved in Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune according to JLL Research. Hyderabad led the pack with the highest net absorption in Q4 2020.
While the southern markets of Bengaluru and Hyderabad accounted for more than 50% of the net absorption in Q4 2020, maximum increase in net absorption (when compared to Q3 2020) was witnessed in Mumbai, Delhi-NCR and Chennai. Kolkata also witnessed a strong resurgence.
Chennai recorded 310% increase in net absorption in Q4 vs Q3, from 0.21 million sq feet to 0.86 million sq feet, while Hyderabad saw 84% increase from 1.54 million sq feet to 2.83 million sq feet. Bengaluru, meanwhile, saw 50% reduction in growth from 2.72 million sq feet to 1.37 million sq feet.
Net absorption is a measurement of the increase or decrease change of the supply of commercial space in a real estate market over a period of time. The increase in net absorption was driven by spaces leased out in buildings that were still under construction, with 56% of such newly completed buildings already being leased out.
“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 report says.
The IT/ITeS sector formed a major proportion of office spaces, while leasing activity is being driven by increased demand for office spaces from sectors such as e-commerce, healthcare and FMCG.
The office real estate market was most impacted as lockdown measures disrupted the way of work. While the remote working experiment proved to be fairly successful for a majority of the organisations, JLL Research believes that work from home is not a sustainable long-term solution for all corporates.
“It presents several physical and cultural challenges, more so for a country like ours with a large proportion of employees staying in multi-generational households,” it adds.
The report suggests that work from home could be, at best, a supplement to the traditional way of working from office and could impact the office market demand by an estimated up to 20% in the medium to long term.
“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. “Notably, net absorption in Hyderabad crossed the average annual levels witnessed during that same timeframe,” he added.
While Q4 2020 saw recovery being sustained in both net absorption as well as new completions, the pace is only expected to increase in the upcoming quarters. However, some changes are bound to happen. “Flexibility will be the key to speeding up the recovery process. Landlords will have to be more receptive to the demands of tenants and offer flexible options, in terms of space as well as value. Learnings from the pandemic will also be incorporated in office design along with an increased focus on sustainability and employee wellness, according to the report.
Looking forward, the report says that strong market fundamentals, sustained IT sector growth, increasing demand from sectors such as e-commerce, healthcare, FMCG and the increasing presence of institutional investors, will continue to drive the office market.