Net absorption of office spaces dips 44% in 2020: JLL India

NEW DELHI: In 2020, the net absorption of office spaces in top seven cities dipped by 44% when compared to 2019, according to JLL India. In 2019 the net absorption crossed 46 million sq ft while in 2020 it has reached about 25.82 million sq ft.

In the Jan-March 2020 quarter the net absorption was 8.80 million sq ft which saw a drastic drop in the following two quarters: 3.32 million sq ft in Apr-Jun 2020 and 5.43 millon sq ft in Jul-Sep 2020 quarter. In Oct-Dec quarter, however, the absorption improved to 8.27 million sq ft, according to JLL research.

Hyderabad led the pack with the highest net absorption in Q4 2020. While the southern markets of Bengaluru and Hyderabad accounted for more than 50% of the net absorption in Q4 2020, maximum increase in net absorption (when compared to Q3 2020) was witnessed in Mumbai, Delhi NCR and Chennai.

The increase in net absorption was driven by pre-commitments in new completions during the quarter. 56% new completions were already pre-committed.

While IT/ITeS continues to form a majority proportion, leasing activity is being driven by increased demand for office spaces from sectors such as e-commerce, healthcare and FMCG.

JLL India feels work-from-home concept which has been adopted as an alternative by corporate during 2020 could be, at best, a supplement to the traditional way of working from office and could impact the office market demand by an estimated up to 20% in the medium to long term.

This dip will be counter-balanced by increasing demand for office spaces from emerging sectors like healthcare, e-commerce and data centres.

On an annual basis, new completions across the top 7 cities dipped by 30% to about 36.34 million sq ft in 2020 as compared to 51.62 million sq ft in 2019. New completions during the October-December quarter were recorded at 12.78 million sq ft.

“The year 2021 is expected to witness close to ~38-40 million sq ft of new completions, while net absorption is likely to hover around 32-35 million sq ft,” said Dr. Samantak Das, chief economist and head of research & REIS, India, JLL.

Occupiers, however, continue to review their real estate portfolios and are adopting consolidation and optimisation strategies through the year. The relatively subdued net absorption levels could not keep pace with new completions. This resulted in overall vacancy increasing from 13.5% in Q3 2020 to 14% in Q4 2020.

Office rents in 2020 remained stable across the major office markets in India. With stable rental values, range-bound vacancy levels and limited upcoming Grade A supply across key markets, the office market in India continues to be landlord favorable. Hence, reduction of headline rents is not a popular phenomenon and rents are expected to remain stable in the short to medium term.