office space: Office market net absorption up 48% in the third quarter of 2021: JLL
A better awareness about the virus, preparedness along with mass vaccination drive and unlocking of the economy has aided in the revival of the office market. As a result, and due to many such supportive factors, the net absorption recorded in Q3 2021 surpassed the net absorption recorded in Q1 2021 by 12%, which paint a clear picture of improved market sentiments and growing confidence among occupiers.
Net Absorption includes new leasing in completed buildings and pre-commitments in buildings that become operational during the time being reviewed and excludes exits/terminations, churns, renewals, and pre-commitments in the future supply.
“The office market has been progressive in Q3 2021, and this momentum is expected to continue in the coming quarters as the demand for office spaces will continue to expand backed by consolidation and expansion of office spaces by occupiers and increasing demand for satellite offices. While the net absorption in the top seven markets was at approximately 5.8 million sq. ft in Q3 2021, the Gross Leasing Volume (GLV) touched 6.3 million sq. ft during the quarter, an increase of 25% Q-o-Q, which indicates a sustained resurgence in demand,” said Radha Dhir, CEO and Country Head, India, JLL.
The larger markets of Delhi NCR, Mumbai, and Pune contributed to 62% of the total volumes recorded in the quarter. Among the top 7 cities under review, Pune witnessed heightened leasing activity compared to the previous quarter, followed by Chennai.
Although the leasing activity gained momentum in Q3 2021, it is yet to reach the pre-pandemic levels measured in the quarterly average seen in 2019 and Q1 2020.
“Taking cues from 2020, the last quarter of the year is expected to witness increased momentum in the office space. However, net office absorption across seven major cities in 2021 is unlikely to touch net absorption recorded in the previous year (25.6 million sq ft), with about 15 million sq ft being recorded in the first three quarters of 2021. This being said, IT/ITeS occupiers continue to drive leasing and form a majority proportion of demand. With the unlocking of economy, several IT firms are keen to bring back their employees to the workplace,” said Samantak Das, chief economist and head research and REIS, India, JLL.
Leasing activity was mostly driven by the manufacturing sector, which accounted for about 40% of the total leasing activity.
The markets of Bengaluru, Delhi NCR and Hyderabad, accounted for about nearly 60% of the net absorption during the quarter.
The cities of Chennai and Delhi-NCR witnessed significant growth in net absorption compared to the previous quarter. Delhi NCR – Recorded the highest net absorption amongst the top 7 cities in Q3. The net absorption recorded in the third quarter surpassed the net absorption registered in Q1 2021 by 32%, indicating a strong market recovery despite a dip in Q2 2021.
“The heightened activity in these cities indicate a positive outlook for office sector combined with the translation of pent-up demand from the previous quarters. Healthy pre-commitments in new completions drove the net absorption this quarter. Pre-commitments accounted for about 66% of the net absorption. The markets of Hyderabad and Delhi NCR witnessed strong pre-commitments in newly completed office spaces,” said Das.
New completions in Q3 2021 were recorded at 10.89 million sq. ft., a drop of 7% when compared to Q2 2021 and a 19% increase compared to the same period the previous year. With the addition of nearly 11 million sq ft of space, the Grade A office stock in the top seven cities under consideration crossed 660 million sq ft. Almost 35% of new completion was pre-committed.
The robust new completion level in Q3 2021 indicates that the second wave did not hugely impact construction activity.
Developers, however, continued to focus on leasing existing projects.
The markets of Bengaluru, Delhi NCR and Hyderabad, accounted for about 73% of the total completion in the quarter. Almost 45% of the new supply in these cities were pre-committed.
Office rentals remained stable across the major office markets in India in Q3 2021. However, landlords continue to be accommodative to the demands of occupiers and support deal closures. With vacancy levels already hovering at around 16%, the next few quarters will be critical for pick-up in need while maintaining the market buoyancy as planned supply enters the market.
Strong market fundamentals, positive economic growth, and a healthy supply pipeline is likely to bring back the leasing momentum to pre-pandemic levels in 2022in case there are no other lockdowns. In a nutshell, if vaccination targets are achieved and we do not see another significant virus outbreak, the year 2021 is most likely to witness green shoots in terms of market recovery.