Office market net absorption up 48% in third quarter of 2021: JLL

• Delhi NCR, Mumbai, and Pune contributed to 62% of the gross leasing volumes recorded in Q3
• New completions in Q3 2021 were recorded at 10.9 million sq. ft

Mumbai, October 08, 2021: India’s net office absorption stood at of 5.85 million sq. ft in Q3 2021 (July-September), a jump of 48% when compared to previous quarter and an 8% Year-on-Year (YoY) growth in major cities, according to JLL’s Office Market Update-Q3, 2021. A better awareness about the virus, preparedness along with mass vaccination drive and unlocking of economy has aided in the revival of the office market. As a result, and due to many such supportive factors, the net absorption recorded in Q3 2021 surpassed the net absorption recorded in Q1 2021 by 12% which paint a clear picture of improved market sentiments and growing confidence among occupiers.

Office net absorption bounced back stronger

*Actual % growth is likely to vary owing to rounding off differences 

Net Absorption includes fresh leasing in completed buildings and pre-commitments in buildings that become operational during the time being reviewed, and excludes exits/terminations, churns, renewals, and pre-commitments in future supply.

Source: Real Estate Intelligence Service (REIS), JLL Research 

“The office market has been progressive in Q3 2021 and this momentum is expected to continue in the coming quarters as the demand for office spaces will continue to expand backed by consolidation and expansion of office spaces by occupiers and increasing demand for satellite offices. While the net absorption in the top seven markets was at approximately 5.8 million sq. ft in Q3 2021, the Gross Leasing Volume (GLV) [1]touched 6.3 million sq. ft during the quarter, an increase of 25% Q-o-Q which indicates a sustained resurgence in demand. The larger markets of Delhi NCR, Mumbai, and Pune contributed to 62% of the total volumes recorded in the quarter. Among the top 7 cities under review, Pune witnessed heightened leasing activity compared to the previous quarter followed by Chennai,” said Radha Dhir, CEO and Country Head, India, JLL. 

Although the leasing activity gained momentum in Q3 2021, it is yet to reach the pre-pandemic levels measured in terms of quarterly average seen in 2019 and Q1 2020.

“Taking cues from 2020, the last quarter of the year is expected to witness increased momentum in the office space. However, net office absorption across seven major cities in 2021 is unlikely to touch net absorption recorded in the previous year (25.6 million sq ft) with about 15 million sq ft being recorded in the first three quarters of 2021. This being said, IT/ITeS occupiers continue to drive leasing and form a majority proportion of demand. With the unlocking of economy, several IT firms are keen to bringing back their employees to the workplace,” said Dr. Samantak Das, chief economist and head research and REIS, India, JLL. 

“Around 35 million sq ft of Grade A office space was completed in YTD (Jan-Sept) 2021 which is a 53% increase when compared to the same period last year. The growth pace of new completions show that developers are confident of a strong revival in office leasing activity once business as usual is reinstated,” he added

The markets of Bengaluru, Delhi NCR and Hyderabad accounted for about nearly 60% of the net absorption during the quarter.

City Insights

Delhi NCR – Recorded the highest net absorption amongst the top 7 cities taken under consideration this quarter. The net absorption recorded this quarter surpassed the net absorption registered in Q1 2021 by 32% indicating a strong market recovery despite a dip in Q2 2021. Leasing activity was mostly driven by manufacturing sector which accounted for about 40% of the total leasing activity.

Hyderabad – Bounced back strongly and recorded net absorption of 1.08 million sq ft backed by good pre-commitments in new completion as well as strong demand from BFSI and IT/ITES sectors. Like Delhi NCR, Hyderabad’s net absorption surpassed Q1 2021 levels by 38% indicating a strong market recovery.

Bengaluru – Recorded net absorption of about 1 million sq ft. The city’s office market witnessed increased demand from co-working operators, accounting for about 48% of the leasing activity.

The cities of Chennai and Delhi-NCR witnessed significant growth in net absorption compared to previous quarter.  The heightened activity in these cities indicate a positive outlook for office sector combined with the translation of pent-up demand from the previous quarters. Healthy pre-commitments in new completions drove the net absorption this quarter. Pre-commitments accounted for about 66% of the net absorption. The markets of Hyderabad and Delhi NCR witnessed strong pre-commitments in newly completed office spaces.

New completions dip marginally 

*Actual % growth is likely to vary owing to rounding off differences

Source: Real Estate Intelligence Service (REIS), JLL Research

New completions in Q3 2021 were recorded at 10.89 million sq. ft., a drop of 7% when compared to Q2 2021 and a 19% increase when compared to the same period the previous year. With the addition of nearly 11 million sq ft of space, the Grade A office stock in the top seven cities under consideration crossed 660 million sq ft. Almost 35% of new completion was pre-committed. The robust new completion level in Q3 2021 is indicative of the fact that construction activity was not hugely impacted by the second wave. Developers however, continued to focus on leasing of existing projects. The markets of Bengaluru, Delhi NCR and Hyderabad accounted for about 73% of the total completion in the quarter. Almost 45% of the new supply in these cities were pre-committed.

Vacancy on the rise

Source: Real Estate Intelligence Service (REIS), JLL Research

New completions continued its streak of the previous two quarters (Q1 and Q2) with 10.8 million sq. ft of supply influx during Q3 2021. However, the net absorption could not keep pace with new completions as occupiers are still cautiously evaluating their real estate portfolios and optimizing cost to ensure business continuity thereby increasing the vacancy levels by 60 bps. With limited precommitments in the newly added supply especially in the markets of Bengaluru, Mumbai, Hyderabad, and Delhi NCR overall vacancy levels increased. Despite the rise in overall vacancy levels, the markets of Chennai and Pune continued to hover in single digits. This augurs well for a strong rebound in these markets as business conditions gradually improve in the coming quarters. Due to a steady pipeline of assets coming online, the demand-supply gap has momentarily widened. Nevertheless, with demand expected to pick up in the coming quarters, vacancy is likely to return to sub 15% levels.

Rentals continue to remain rangebound

Office rentals remained stable across the major office markets in India in Q3 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.

Positive outlook for Office Market 

Strong market fundamentals, positive economic growth and healthy supply pipeline is likely to bring back the leasing momentum to pre-pandemic levels in 2022in case there are no further lockdowns. In a nutshell, if vaccination targets are achieved and we do not see another major outbreak of the virus, the year 2021 is most likely to witness green shoots in terms of market recovery.

Corporate Comm India(CCI Newswire)