Covid impact: Demand for office space to remain flat in 2021

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July 02, 2021 12:15 AM

India’s net office absorption stood at 4.39 MSF in April-June 2021, up 32% year on year (Y-o-Y). However, on a sequential basis, demand fell 16%. As in the last three-four quarters, during Q2 2021 the demand was largely led by Bengaluru and the IT-ITeS/ digital sector.

During January-June 2021, net absorption declined 19% Y-o-Y to 9.63 MSF. Bengaluru and Pune accounted for nearly 60% of the share. These two markets and Kolkata were the only cities that reported growth in demand in the first half this year compared to H1 2020.During January-June 2021, net absorption declined 19% Y-o-Y to 9.63 MSF. Bengaluru and Pune accounted for nearly 60% of the share. These two markets and Kolkata were the only cities that reported growth in demand in the first half this year compared to H1 2020.

India’s office space leasing market has started to feel the pain caused by Covid-19-induced disruptions as not only did the segment report a second consecutive quarter of decline in net absorption during Q2 2021, but Grade A office vacancy levels also fell for the sixth straight quarter, breaching the 13-14% comfort zone for the first time since 2017.

Real estate consultancy JLL India expects net office absorption across top seven markets to remain flat on an annual basis at around 25.6 million square feet (MSF), if there are no more lockdowns. “If vaccination targets are achieved and we do not see another major outbreak of the virus, the year 2021 is most likely to close on an encouraging note,” it said.

India’s net office absorption stood at 4.39 MSF in April-June 2021, up 32% year on year (Y-o-Y). However, on a sequential basis, demand fell 16%. As in the last three-four quarters, during Q2 2021 the demand was largely led by Bengaluru and the IT-ITeS/ digital sector.

During January-June 2021, net absorption declined 19% Y-o-Y to 9.63 MSF. Bengaluru and Pune accounted for nearly 60% of the share. These two markets and Kolkata were the only cities that reported growth in demand in the first half this year compared to H1 2020.

In terms of supply, new completions stood at 11.67 MSF in Q2 2021, more than double achieved in Q2 2020, JLL India said adding, “With addition of nearly 12 MSF of space, the Grade A office stock in top 7 cities under consideration crossed 650 MSF. During the first wave of Covid, new completions took a hit due to unavailability of labour.”

JLL India said that due to a steady pipeline of offices hitting the market, the demand-supply gap has increased. Vacancy levels across the top seven markets rose to nearly 16% at the end Q2 2021 breaching the comfort zone of 13-14% for the first time in four years. However, with demand expected to pick up in coming quarters, vacancy is likely to return to sub-15% levels, it said.

On the brighter side, JLL India chief economist, Samantak Das said the market has shown more resilience in Q2 2021 compared to the same quarter last year. The strength displayed by the office space market since the pandemic owes much to the fact that IT-ITeS sector has been largely unaffected by the economic downturn, he said.

“IT-ITeS occupiers continued to account for a majority of the office leasing activity in 2020 at around 50%. In 2021, we expect the IT-ITeS sector to remain the key occupier group while demand from emerging sectors like e-commerce, manufacturing and healthcare is likely to increase further,” Das said.

Another positive is that office rentals were stable across major markets in India in Q2 2021. However, landlords continue to be accommodative to the demands of occupiers and support deal closures. With vacancy levels already hovering at around 16%, the next few quarters will be critical in terms of pick-up in demand while maintaining the market buoyancy as planned supply enters the market, JLL India said.

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