Overall demand for office space may remain strong in 2021: Knight Frank

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Updated: November 30, 2020 2:31 PM

The Bengaluru market is expected to experience a rise in rental values in the next year while Mumbai and NCR are expected to remain stable in rental values.

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India’s office market will remain resilient in the new year, reveals a Knight Frank report, although the Asia-Pacific prime office rents are expected to decline between -3% and 0% in 2021.

The report, titled ‘Asia-Pacific Real Estate Outlook 2021: Navigating the Post-Pandemic Recovery’, states that the Bengaluru market is expected to experience a rise in rental values in the next year while Mumbai and NCR are expected to remain stable in rental values. These trends indicate that despite a bleak period between April and June 2020, the overall demand for the office space could remain strong in the new year.

For the main office markets of India, the positive trends are a draw out of the encouragement received in the subsequent part of 2020 (July – Sept) which saw the office space demand making a comeback, albeit still short of pre-COVID periods. Bengaluru, in particular, has the benefit of existing low vacancies that will enable absorption of much of the upcoming supply. The city also has the advantage of relatively lower rentals compared to global markets and large talent pool that should help in quicker revival of this market as global economies move towards normalcy.

The demand for warehousing remained relatively resilient this year, correcting only by 11% Y-O-Y, as compared to the 44% CAGR recorded from FY17 to FY20. Despite the ongoing pandemic, the Indian warehousing sector is expected to remain comparatively less impacted due to the rising e-commerce demand which is expected to grow from $70 billion in FY19 to an estimated $160 billion by 2022. With such a strong demand driver, India will be a region that data centre investors, occupiers, and solution providers will find hard to ignore, which will in turn further boost demand for the prime industrial sector.

With an increase in demand from e-commerce, India’s online retail growth is estimated at 13% Y-o-Y in 2020. In October 2020, the asking industrial rents for Mumbai, Delhi, and Bengaluru warehousing remained stable and are expected to remain unchanged for the year 2021.

In terms of APAC Capital market forecast, the commercial yields for Mumbai, NCR, and Bengaluru under office and warehousing segment are expected to remain stable in 2021. In the APAC region industrial investment share of commercial transaction volumes increased by 50% in 2020 and is expected to continue do well in 2021 as investors continue to jump on the e-commerce growth.

Commenting on the same, Shishir Baijal, Chairman and Managing Director at Knight Frank India, said, “The year 2020 has been dominated by the pandemic which resulted in low activity in Q2 2020 (April – June) and segments across the Indian real estate sector remained subdued. However, with positive measures being taken up by the government and the RBI, we saw momentum resume in Q3 2020. The beleaguered residential sectors received a new lease of life during this period and demand saw an unprecedented surge. This has created a sense of optimism in the sector. With news of the mass vaccine for COVID being only month’s away, the office sector is also expecting to see a revival with economic activities opening up worldwide.”

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