Office space leasing surged 25% to 10.8 million square feet across the top eight Indian cities in the three months of January-March. The demand for office made a swift return despite about one month being disrupted by the third wave of Covid-19 that impacted decisions in the early part of the quarter, according to Knight Frank India.
Bengaluru remained the foremost market with total leasing of 3.5 million sq ft of office space, followed by the National Capital Region (NCR) which recorded 2.3 million sq ft of gross leasing in the first three months. Mumbai was the only market that saw a year-on-year (y-o-y) decline of 24% in leasing activities with 900,000 sq ft being leased in the first quarter of 2022.
The quarter saw the addition of 11.9 million sq ft of new office space across cities, registering a rise of 13% y-o-y over the same quarter last year. Pune led all markets with new supply additions of 3.6 million sq ft in the first quarter a rise of 107% y-o-y, while Bengaluru recorded new completions of 2.5 million sq ft a sharp decline of 25% y-o-y which was the second-highest volume addition for the quarter.
Co-working and managed office spaces saw a rise in the share of office space absorption making up 21% of total leasing volume in Q1 2022 as against 11% in Q1 2021 (calendar year). In absolute terms, managed office spaces took up 2.3 million sq ft of spaces against 0.9 million sq ft recording a rise of 151% y-o-y. The information technology sector saw a decline in its share of space take-up in the first quarter of 2022, making up about 27% of total leasing versus 32% in Q1 2021. The IT sector’s ‘back to office’ transition was hampered by the Omicron variant and caused some IT corporates to postpone their leasing decisions.
Rental values continued to recover with five of the eight markets seeing an increase or stability in rental values compared to a year ago. Bengaluru registered the highest growth at 4% y-o-y in the first quarter. Despite the growth in transactions, rental values in NCR remained subdued recording a decline of 1% y-o-y. Mumbai, while continuing to remain the most expensive, registered a decline of 3% y-o-y.
Shishir Baijal, chairman and managing director, Knight Frank India said, “The country has returned to normality backed by strong vaccination drive that has given India Inc confidence. We expect the office segment to return to its pre-Covid momentum in the next few quarters as the Indian economy continues to strengthen. The significant increase in hiring and the pent-up demand of the past eight quarters, are expected to drive market volumes in the remainder of the year.”