Office Market Update: Q2 2021

In the second half of March, fears of a resurgence of the COVID-19 pandemic intensified in India. As the virus spread, lockdowns with varying restrictions were implemented across the prominent office markets of the country. Corporate occupiers did not shelve but only delayed their office space requirements. In the beginning of June, as the impact of the second wave started subsiding, select larger markets showed signs of quick recovery with new RFPs being floated and the closure of ‘onhold’ transactions.

In Q2 2020, the drop in net absorption was a significant 61% on a sequential basis. This time around, the impact of the second wave was only to the extent of 25%. In fact, net absorption in Q2 2021 increased by 19% on a y-o-y basis. During this second wave, construction activity was not impacted in a big way. Robust new completion levels in Q2 2021 is indicative of the fact that the developers were more prepared during the second COVID-19 wave. With subdued leasing activity and a steady supply of grade A office assets, the demand-supply gap has momentarily widened with overall vacancy increasing to nearly 16% at the end of the second quarter. 

With expected ramp up in vaccination across the country in the backdrop of a gradual reduction in the number of cases, the second half of the year is expected to witness an increased momentum in office space leasing. Net office absorption in 2021 is likely to remain flat or may grow slightly from the 25.6 mn sq ft achieved in 2020, in case there are no further lockdowns. However, it will remain below the saverage annual levels of ~35 mn sq ft witnessed over 2016-19.