Office Market Update: Q1 2021
Get a pulse of India's Office Real Estate Market with this quarterly report from JLL which covers recent movements in the demand & supply dynamics across cities
The year 2020 witnessed net absorption of 25.6 million square feet while new completions were recorded at 36.3 million square feet. Net absorption levels reached 81% of what was observed between 2016 and 2018, while new completions surpassed the average levels of ~34 million square feet witnessed during the same time. In the backdrop of the pandemic, this was a significant achievement. While 2020 ended on a relatively high note, there was still uncertainty in the market to resume business as usual. In Q1 2021, occupiers adopted a cautious approach and focused on reassessing their real estate portfolios and long-term commitments. But, a spike in COVID-19 cases in the second half of March again pushed occupiers to press ‘pause’.
Consequently, market activity in Q1 2021 remained subdued. The office market witnessed a net absorption of 5.53 million square feet in the first quarter of 2021, a decrease of 33% compared to the last quarter of 2020. The markets of Bengaluru, Hyderabad and Delhi NCR accounted for nearly 80% of net absorption during the quarter. Moreover, Bengaluru, and Delhi NCR were the only two markets that witnessed an increase in net absorption when compared to Q4 2020.
Notably, the leasing momentum in some of the larger markets remained promising in the first quarter of 2021. For example, Mumbai saw a massive jump in the leasing volume - from 0.5 million square feet in Q4 2020 to 1.6 million square feet in Q1 2021. This was majorly driven by select large pre-commitment deals in upcoming spaces within the BFSI space. Also, leasing volumes in Delhi NCR increased marginally from 1.9 million square feet in Q4 2020 to 2 million square feet in Q1 2021.
New completions during Q1 2021 were recorded at 13.43 million square feet, a marginal increase of 5% compared to Q4 2020. New completions across the top seven cities jumped by 56% y-o-y, from 8.6 million square feet recorded in Q1 2020. Interestingly, new completions surpassed even the average quarterly levels of ~13 million square feet witnessed during the historic year of 2019.
The subdued net absorption levels could not keep pace with new completions, resulting in overall vacancy increasing from 14.% in Q4 2020 to 14.9% in Q1 2021. 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, a reduction in headline rents will not be a popular phenomenon. Rather rents are expected to remain range-bound in short to medium term.
The leasing momentum in the upcoming quarters will mainly depend on the time taken to contain the second wave of COVID-19. However, it is important to focus on a few things that give us confidence that there is light at the end of the tunnel. The vaccination drive has picked up pace across the country, and occupiers remain cautiously optimistic about the future. The increasing attendance in offices across major markets before the second COVID-19 wave bears testimony to the confidence and commitment of corporates to get back to the office. The year 2021 is expected to witness close to 38 million square feet of new completions, while net absorption is likely to hover around 25-30 million square feet. This will be at par with the net absorption levels witnessed during 2020.