Office Market Update | Q3 2020

In 2019, the office market in India reached its peak with the net absorption of Grade A spaces touching a new high of 46.5 mn sq ft and new completions breaching the 50 mn sq ft mark. But the COVID-19 pandemic put brakes on India’s booming office real estate market. Nationwide lockdowns challenged existing notions and made us ponder over the next normal in office real estate.

While the crisis led to acceleration of trends like remote working and the use of collaborative technology in the short term, the long-term real estate implications are still uncertain. Some change is inevitable and office in its new avatar will only emerge stronger in the next normal.

In Q3 2020, the office market in India witnessed increased activity. With the gradual opening of the economy, occupiers started reassessing their real estate portfolios and commitments. Net absorption increased by 63%, while new completions grew by 59% when compared to the preceding quarter.

Bengaluru and Hyderabad account for nearly 80% of net absorption

Increased office space consolidation and optimisation strategies of corporate occupiers resulted in subdued net absorption levels, which could not keep pace with new completions. This resulted in overall vacancy increasing from 13.1% in Q2 2020 to 13.5% in Q3 2020.

It is important to point out that landlords are definitely taking into account the current situation and have become more accommodating to the demands of occupiers.

Greenshoots of recovery were witnessed in the third quarter of 2020 with leasing activity gaining momentum. The pace is only expected to increase in the upcoming quarters. However, 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.

Strong market fundamentals, sustained IT sector growth and the increasing presence of institutional investors will continue to drive the office market in the times to come.