Office space leasing in National Capital Region decline by 45% in Jan-June: Report

NEW DELHI: New office completions in National Capital Region (NCR) saw 86% YoY decline to 0.08 mnsq m (0.8 mnsq ft) in H1 2020, according to a report by Knight Frank India.

In its H1 2020 report of the office and residential market performance across eight major cities for the January-June 2020, it said that office leasing transaction volumes saw a decline of 45% YoY to 0.19 mnsq m (2.1 mnsq ft).

The report said that office space demand in NCR has been strengthening with each year during the last decade. However, with the onset of 2020, Covid-19 induced tumultuous business environment has influenced the transaction volumes in the market.

In terms of the sectoral split, a large number of smaller ticket sized deals helped IT/ITeS re-emerge as the predominant sector in overall office leasing activity in H1 2020 with a 60% share. However, the new market realities as a result of the of the pandemic saw co-working sector’s share reduced to 3% of the total leasing in H1 2020.

“Pervious year, the overall NCR office market saw exponential growth in terms of supply as well as transactions. COVID -19 outbreak and the nationwide lockdown has completely altered the scenario,” said Mudassir Zaidi, Executive Director – North of Knight Frank India.

The vacancy level in the NCR office market declined marginally to 16.3% in H1 2020 when compared to 16.8% in H1 2019.
Fearing exits from tenants, landlords have started giving some flexibility with rents and a visible downward pressure on rents was observed in H1 2020. The weighted average transacted rentals declined by 9% YoY to INR 844 per sq m per month (INR 78.4 per sq ft per month) in H1 2020.

“As planned real estate space take-ups have been put on hold as occupiers wait for the situation to evolve in the second half of the year. Many of the tenants are in the process of reassessing their real estate portfolio and attempting renegotiations with existing landlords on size and rents as well,” Zaidi added.

Covid-19 outbreak pushed the office leasing market in Gurugram, which is the most sought after market in NCR, to a decadal low. A decline of 69% YoY was witnessed in the transaction volume which stood at 0.09 mnsq m (0.9 mnsq ft). In terms of new office space supply, Gurugram noted an 88% YoY decline as an only limited infusion of 0.03 mnsq m (0.3 mnsq ft) became available.

“The on-going pandemic is testing the flexibility of corporate occupiers to operate in an environment where a part of the workforce returns to office premises in the ‘new normal’ while monitoring the workforce operating remotely via work from home (WFH) model. As we move towards the second half of 2020 and businesses start returning to action with Unlock 2.0, we can expect these challenging times to provide new opportunities for tenants to revisit decision making with respect to their real estat real estate portfolios,” Zaidi further said.

In terms of leasing activity, CBD Delhi, one of the premium office micro-markets in India, registered de-growth of 61% YoY in H1 2020. The city witnessed major interest only from BFSI sector occupiers in this period. Despite high rentals, areas like Connaught Place and Barakhambha Road remained a hotspot for occupiers. Whereas, SBD Delhi accounted for a marginal 2% share of the total office space transacted in H1 2020.