India’s six major cities recorded office space absorption at 30.4 mn sq ft, registering a 130% YoY increase as of June 2022, as business confidence among occupiers strengthened owing to COVID infections remaining largely under control over the last few months, according to Savills India.
Meanwhile, the first half of 2022 also witnessed a 76% increase in new supply infusion at 32.4 mn sq ft. With this, the total Grade A office market stock in the country stands at 676.9 mn sq ft.
The top three cities, namely Bengaluru, Delhi-NCR and Pune, contributed to 66% of leasing activity in H1 2022. Bengaluru continued to lead with 10.7 mn sq ft of leasing activity, 110% higher than H1 2021 and representing a 35% share in overall gross absorption in H1 2022.
Pune was a surprise entry in the top pack as the third position is usually a tussle between Mumbai and Hyderabad. Pune displayed the highest YOY growth backed by large-sized deals and heightened demand from IT-BPM as well as flexible workspace operators.
On the other hand, demand in Mumbai is yet to accelerate as it appears in the bottom-most position among the top 6 in H1 2022. The city majorly saw mid-sized deals and term renewals that constituted the bulk of its demand.
However, it needs to be noted that the overall absorption in Pune, Chennai, Hyderabad and Mumbai remains similar in magnitude, i.e., between 3.3 and 3.7 mn sq ft apiece.
As per Savills India, the demand momentum is likely to continue through the year and reach the pre-pandemic levels of 55-60 mn sq ft. The demand is now more broadbased and not heavily reliant on the IT-BPM industry. Other sectors such as flexible workspaces, engineering and manufacturing contributed notably.
COMPLETIONS & VACANCY HIGHLIGHTS
New supply infusion in H1 2022 was also robust, totalling 32.4 mn sq ft, denoting a 76% YoY rise. All cities witnessed a rise in new completions except Delhi-NCR, which saw a 44% dip owing to slow construction. Bengaluru recorded the highest infusion of new supply; which represents a 38% share at 12.2 mn sq ft, followed by Hyderabad and Pune at 19% and 14%, respectively.
As a result of rise in new completions, overall vacancy levels increased to 19.2% at the end of June. This is expected to rise further owing to strong construction pipeline in Southern cities, namely Bengaluru, Chennai and Hyderabad.
All cities except Pune have seen an increase in average rental values of about 7% compared to last year. Gurugram and NOIDA in Delhi-NCR saw the highest YoY increase of about 20% and 11%, respectively, due to limited infusion of new supply and low availability of quality office space amidst rising demand. Hyderabad also saw a notable increase of 7% owing to strong demand pipeline with about 2.8 mn sq ft of spaces pre-committed.
On the other hand, the rental values in Pune were range-bound as developers refrained from increasing rents notably to sustain demand momentum.
Commenting on the findings of the report, Arvind Nandan, Managing Director – Research and Consulting, Savills India, said, “The year started with rising optimism on the back of growth in the 2021 calendar. Despite the impact of the third wave and Russia-Ukraine conflict which overshadowed the first quarter economically, occupier confidence stayed strong. Most businesses took advantage of the available inventory to upgrade their real estate portfolios, which resulted in strong leasing activity across the top 6 cities. Supply grew as well, making it an end users’ market. 2022 is expected to reach pre-pandemic levels as technology and IT-BPM sectors are once again driving demand for the office spaces.”