Office Market Update: Q1 2022

The market continues to remain firmly on the path to a sustained recovery as easing of COVID restrictions and low infection rates have allowed occupiers to plan their real estate strategies in a much more certain environment. Strong pre-commitments in new completions supported net absorption during the quarter despite the omicron wave in the early part of the quarter. In Q1 2022, India’s top seven office markets combined to record net absorption of 11.55 mn sq ft, which while being similar to the last quarter was still the highest since the onset of the pandemic in March 2020. This is a healthy sign despite the lingering effects of the third wave in January 2022. On a y-o-y comparison, net absorption was up by a significant 113%, clearly indicating the momentum that is now visible in the market.

Return to the workplace started in the right earnest during the second half of Q1 2022. With occupiers signaling that their hybrid workplace policies are in place, it is pertinent to note that pre-commitments were largely intact and there has been very limited or almost no downsizing activity by larger corporates during the quarter, indicating the shift in occupier sentiment and greater certainty of business as the pandemic remains under control.

Trends in the commercial office segment

Here are some notable trends in vacancies, rental growth, supply and micro-markets.

Quarterly supply hits an all-time high in Indian real estate

Q1 2022 was witness to the highest ever supply addition of 20.21 mn sq ft in a quarter for the top seven cities. The office markets of Hyderabad (23.6%), Pune (23.8%), and Bengaluru (22.9%) headlined new completions in the quarter accounting for about 70% of the quarterly supply addition.

Vacancy rises by 80 bps q-o-q

Given the significantly high completions in Q1 2022, the pan-India vacancy has jumped by 80 bps q-o-q to 16.1%. Due to a steady pipeline of assets coming on-stream, the demand-supply gap has momentarily widened.

Hyderabad and Pune account for about 50% of the net absorption in Q1 2022

Hyderabad recorded the highest net absorption among the top seven cities, followed by Pune, with both of them surpassing the net absorption in Bengaluru for Q1. Also, the cities of Chennai, Hyderabad, and Pune witnessed a healthy growth in net absorption when compared to the previous quarter.

Completions headlined by Hyderabad, Pune, and Bengaluru

The quarterly supply addition stood at a historic high of 20.21 mn sq ft, with Hyderabad (23.6%), Pune (23.8%), and Bengaluru (22.9%) headlining the new completions in the quarter.

Rentals remain largely stable

On a q-o-q basis, rentals across the major office markets witnessed marginal growth of 0.5%-0.8%, with Kolkata recording the maximum growth of 2.1%.