Economic recovery to bring back office leasing momentum to pre-pandemic levels
According to industry experts the market is seeing green shoots 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.
India’s office transactions recorded a strong quarterly growth in the third quarter of 2021, despite a much more severe second wave of COVID infections and the looming threat of a third wave. “Country’s net office absorption stood at 5.85 million sq. ft in July-September, a jump of 48% when compared to previous quarter and an 8% Year-on-Year (YoY) growth in major cities, which indicates a sustained resurgence in demand,” the JLL report mentioned.
The larger markets of Delhi NCR, Mumbai, and Pune contributed to 62% of the total volumes recorded in the third quarter, corporate India taking significant steps toward resuming work from office, increasing the rate of vaccinations along with fewer restrictions on mobility, improved the business environment and aided a recovery to market traction levels seen in pre-pandemic times.
“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,” said Samantak Das, chief economist and head research and REIS, India, JLL.
According to Knight Frank, the total office transactions of the eight India markets in Q3 2021 have improved and reached 83% of the 2019 quarterly average level. Among the larger markets, Chennai, Bengaluru, and National Capital Region (NCR) recorded the highest recovery in Q3 2021 with transactions reaching the level of 123%, 112% and 93% respectively of the quarterly average of the year 2019, said Knight Frank.The heightened activity in these cities indicate a positive outlook for the office sector combined with the translation of pent-up demand from the previous quarters.
As per the experts, IT/ITeS occupiers continue to drive leasing and form a majority proportion of demand. With the unlocking of the economy. Some of the large transactions from January to September 2021 includes Intel taking 300,000 sft in Ecospace, Bangalore, MasterCard leasing 300,000 sft in Brookefield – Park, Pune and Legato leasing 2,70,00 sft in Avance H09 in Hyderabad.
“The third quarter of 2021 saw the Indian office space market chart a robust recovery after the second wave threatened to derail the market in the preceding quarter. The volumes achieved in this quarter are also statistically significant when benchmarked against the quarterly average of 2019, as office transactions were at a historic high in that year. In near future, capex announcements from leading Indian companies during the recent quarterly earnings will prove to be a significant growth factor for the demand of the office assets.” said Shishir Baijal, CMDr, Knight Frank India.
Although the leasing activity gained momentum in the third quarter of 2021, it is yet to reach the pre-pandemic levels measured in terms of quarterly average seen in 2019 and Q1 2020. However, the fourth quarter of 2021 could see heightened traction as seen in 2020, if infection levels continue to remain low and vaccination targets are achieved.
“The last quarter has been very active especially with demand coming back strong thanks to renewed hiring in the tech world. Some large replace RFP’s are keeping the it interest levels very buoyant. If all goes well we will back to 28-30 million sqft, ” said said Juggy Marwaha, CEO, Prestige Office Ventures. Prestige is adding 40 million over the next few years across India.
Transaction volumes have been inversely correlated with the perceived intensity of the pandemic. Market activity peaked in Q4 2020, as new COVID-19 cases trended lower and the near-term visibility of a viable vaccine increased. Similarly, the second wave of infections impacted transacted volumes during the second quarter of 2021 and the current recovery reflects the comparatively easing of the impact of the pandemic.
“The growth pace of new completions show that developers are confident of a strong revival in office leasing activity once business as usual is reinstated,” said Das.
New completions continued its streak of the previous two quarters (Q1 and Q2) with 10.8 million sq. ft of supply influx during Q3 2021. Around 35 million sq ft of Grade A office space was completed in Jan-Sep 2021, a 53% increase when compared to the same period last year, mentioned JLL, reflecting developers confidence of a strong revival in office leasing activity once business as usual is reinstated.