Office absorption up 64% in third quarter, new completions increase 59%: JLL report

India’s office market witnessed a net absorption of 5.4 million square feet in the quarter ending September 2020, an increase of 64 percent versus the second quarter ending June, according to JLL Research.

The third-quarter office rebound growth was led by Bengaluru and Hyderabad, which together accounted for nearly 80 percent of the net absorption in Q3 2020. The heightened activity in Bengaluru indicates a gradual resurgence in take up of spaces coupled with the translation of pent up demand from Q2 this year.

“While we continue to see the impact of the pandemic on various businesses, there is a significant surge in activity across most office markets under consideration. This is seen in gross leasing which more than doubled from the previous quarter at 13.8 million sq ft," said Ramesh Nair, chief executive officer and country head, India, JLL.

"At the same time, it is important to note that large and mid-sized occupiers across major markets continue to review their real estate portfolios in a bid to optimise cost, higher emphasis is being given on sustainability and employee well-being as well as adoption of flexible working practices,” he said.

While the share of IT/ITeS occupiers in gross leasing dipped to 43 percent in Q3 from 61 percent in Q2 2020, e-commerce and manufacturing sectors gained significant shares during the third quarter forming 16 percent (negligible in Q2 2020) and 17 percent (5 percent in Q2 2020) respectively, owing to surging demand of e-commerce during COVID-19, it said.

New completions increased by more than half

New completions during Q3 2020 increased by 59 percent quarter-on-quarter with 9.2 million sq ft of new stock coming to market.

“With lockdown restrictions being relaxed in the third quarter in most of the markets under review, office projects in the final stages of construction or pending receipt of occupancy certificates came on board. This resulted in an increase in the supply of office space, even surpassing 8.6 million sq ft witnessed in Q1 2020,” said Samantak Das, chief economist and head of research, India at JLL.

In sync with net absorption, Bengaluru and Hyderabad led the increase in new completions accounting for 87 percent of the total new completions in Q3 2020. Notably, new completions in both these markets even went past the average new completion levels witnessed in the four quarters of 2019, the report said.

Vacancies go up in Grade A offices

Increased office space consolidation and optimisation strategies of corporate occupiers resulted in subdued net absorption levels, which could not keep pace with new completions. This resulted in overall vacancy increasing from 13.1 percent in the June quarter to 13.5 percent in Q3 2020.

Despite the rise in vacancy levels in southern markets, Bengaluru, Chennai and Pune continued to hover in the single digits. This augurs well for a strong rebound in these markets when economic and business conditions improve in the coming quarters.

Rentals across markets remain stable

Except for Bengaluru which witnessed a marginal increase in rents, office rents remained stable across all markets under review between Q3 and Q2 2020. With stable rental values and low vacancy levels, the office market in India continues to be favourable to landlords.