Net office leasing in top cities up 32% YoY to 4.39 mn sq ft in June qtr

Sequentially, there was a 16% dip due to intermittent lockdowns across the country in Q2

With pre-leasing commitments largely intact and limited downsizing activities by larger corporations on hopes of a strong vaccination drive, the country’s net office absorption stood at 4.39 million square feet (msft) in the second quarter of this year, representing 32 per cent year-on-year growth in major cities. 

However, given the intermittent lockdowns across the country in the second quarter, net absorption dipped by 16 per cent versus Q1 of 2021, according to a JLL report on office leasing. However, the quarter-on-quarter drop was lower than the 61 per cent during the same period, that is between April and June last year, when the first wave of the pandemic hit, showing the market’s improved resilience.

The overall market witnessed a net absorption of 9.63 msft in the first half of 2021, a decrease of 19 per cent when compared to H1 2020. Bengaluru and Pune accounted for nearly 60 per cent of the net absorption during January-June period. Moreover, these two markets along with Kolkata were the only ones which witnessed a growth in net absorption in the first half of the year when compared with the corresponding period of 2020.

“Corporate occupiers are holding on to office spaces with the belief that as vaccination drives accelerate, occupancy at offices will start to improve. Furthermore, completions during H1 2021 were recorded at 25.11 msft, an increase of 75 per cent year-on-year, show that developers are confident of a strong revival in office leasing activity once business as usual is reinstated,” said Rahul Arora, Head of Office Leasing Advisory, JLL India.

“In the second half of the year,  if the country can ensure that most of the active workforce gets fully vaccinated, the shift back to office premises will be more feasible and sustainable,” Arora added.

Project completions

New completions in April-June period was recorded at 11.67 msft, more than double of Q2 2020. With the addition of nearly 12 msft of space, the Grade A office stock in the top seven cities under consideration crossed 650 msft.  During the first wave of the pandemic, new completions took a hit due to the unavailability of labour. 

“The strength displayed by the office market in India since the pandemic owes much to the fact that the IT/ITeS sector has been largely unaffected by the economic downturn. IT/ITeS occupiers continued to account for a majority of the office leasing activity in 2020 at around 50 per cent. In 2021, we expect the IT/ITeS sector to remain the key occupier group while demand from emerging sectors such as e-commerce, manufacturing and healthcare is likely to increase further,” said Samantak Das, Chief Economist and Head Research & REIS, JLL.

Due to a steady pipeline of assets coming online, the demand-supply gap has momentarily widened. Vacancy levels across the top seven markets rose to nearly 16 per cent at the end of the second quarter breaching the comfort zone of 13-14 per cent for the first time since 2017. Nevertheless, with demand expected to pick up in the coming quarters, vacancy is likely to return to sub 15 per cent levels, according to JLL.