Office Market Update: Q4 2020
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 office market in India witnessed green shoots of recovery in Q3 2020. The sentiments continued to improve in the fourth quarter of 2020 with news of the development of potential vaccines. On expected lines, the period saw the office market continue its recovery momentum. Net absorption and new completions across the seven cities under review crossed the average quarterly levels witnessed between 2016 and 2018.
The office market witnessed a net absorption of 8.24 mn sq ft in the last quarter of 2020, an increase of 52% when compared to the third quarter. Except for Bengaluru, net absorption of office spaces improved in all the markets under review. While the southern markets of Hyderabad and Bengaluru led the pack accounting for 34% and 17% of the total net absorption in Q4 2020, the maximum increase in net absorption (when compared to Q3 2020) was witnessed in Mumbai, Delhi NCR and Chennai.
Net absorption increases
On an annual basis, net absorption in 2020 dipped by 45% when compared to 2019. However, 2019 was a year of historic highs and a comparison to the average annual net absorption levels between 2016 and 2018 elucidates a more realistic picture of resilience. 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.
Sustained recovery in net absorption
New completions during the October-December quarter were recorded at 12.78 mn sq ft, an increase of 39% when compared to Q3 2020. On an annual basis, new completions across the 7 cities dipped by 30% to about 36.34 mn sq ft in 2020 as compared to 51.62 mn sq ft in 2020. This being said, it is important to note that new completions surpassed the average annual levels of ~34mn sq ft witnessed during 2016-18.
The relatively subdued net absorption levels could not keep pace with new completions. Resultantly, vacancy increased continuously over the last three quarters of 2020. In Q4 2020, overall vacancy increased to 14.0% from 13.5% in Q3 2020.
With stable range-bound vacancy levels and limited upcoming Grade A supply across key markets, the office market in India continues to be landlord favourable. Hence, reduction of headline rents is not a popular phenomenon and rents are expected to remain stable in the short to medium term.
The year 2021 is expected to witness close to ~38-40 mn sq ft of new completions, while net absorption is likely to hover around 32-35 mn sq ft. This will be at par with the annual net absorption levels seen during 2016-2018. With the expected rollout of vaccines and the likely easing of COVID-19 fear, there is a lot to look forward to in the India office market and we expect 2021 to pan out better than the year gone by.