Commercial office absorption at 6.5 msf in Q3 2020: Colliers

In an indication that office occupiers are returning to the drawing board to close deals that were stalled earlier on account of the COVID-19 pandemic, commercial office absorption has picked up across the top six Indian cities, with the third quarter 2020 gross absorption touching 6.5 mn sq ft, up 58 percent quarter-on-quarter, a new report has said.

However, during January-September, gross absorption fell 46 percent year-on-year (YoY) to 22.5 msf due to the prolonged lockdown in the country, the report by Colliers International India said.

Between January-September, Bengaluru accounted for 30 percent of the total gross absorption, followed by Delhi-NCR and Hyderabad with about 17 percent share each.

Occupiers are now evaluating smaller offices in various locations akin to the hub-and-spoke model, instead of large consolidated spaces, and even de-densifying existing offices so that employees can adhere to social distancing norms, the report noted.

Colliers projects gross absorption in the fourth quarter of 2020 to double from the third quarter of 2020, as offices and businesses open further and occupiers return to the drawing board to plan their real estate portfolio.

Consequently, for the full year 2020, Colliers revised its forecast of gross absorption at 36.1 msf, led by projected 26 percent higher activity in H2 2020 from H1 2020. However, this is likely to be 37 percent lower than 2019 when gross absorption touched a new high.

The report said that businesses may still not be able to operate at 100 percent occupancy by the year end and thus absorption will not go up to 2019 levels.

For the full year, Bengaluru is likely to lead leasing as occupiers continue to close deals in the southern city, with Delhi-NCR and Hyderabad following behind.

On the supply front, Q3 2020 saw about 4.1 msf of project completions, led by project completions in Hyderabad that accounted for 53 percent of the total supply. During Jan-September 2020, project completions fell 12 percent year-on-year to about 29.7 msf due to the lockdown and return of migrant labourers to their hometowns and villages.

“Despite adversity, the real estate sector has shown a remarkable comeback in the last few months. Whilst we are still far from achieving the previous year’s activity levels, when compared to the second quarter of this year, activities for Q3 2020 have shown substantial revival. Occupiers continue to review their real estate portfolio and keep a close watch on employee productivity,” says Arpit Mehrotra, Managing Director, Office Services (South India) at Colliers International India.

“We notice that MNCs continue to be bullish about the market, with cities like Bengaluru and Hyderabad continuing to see pre-commitments. The recent strong response to the REIT listing by Blackstone-backed K Raheja Corp, and the built-up anticipation for Brookfield’s planned REIT issue are a testament to the stability and continued attractiveness of the commercial office sector,” said Siddhart Goel, Head of Research Services, Colliers India.

The appetite for sustainable commercial real estate is expected to strengthen, especially for those looking at more stable rental revenues. Traction from private equity capital, especially in core assets, will strengthen further due to volatility in other segments.

“We also expect real estate investment trusts (REIT) to continue to gain traction, even though there will be greater scrutiny on quality of assets, sustainability elements and portfolio resilience,” said Animesh Tripathi, Senior Director, Office Services, Pune at Colliers International India.

Offices in India are currently slowly reopening. Colliers estimates that about 30-40 percent of staff are back in offices in Delhi-NCR and about 20-25 percent in Bengaluru as the respective State governments are still encouraging firms to continue allowing their employees to work from homes.

However, in Mumbai, though the Maharashtra government has limited office usage to 30 percent of staff or 30 employees, whichever is higher, only 10-15 percent of the private office staff is back as there are limitations on private employees using the popular and effective suburban railways, which are the lifeline of the city.

“The fourth quarter of 2020 and Q1- 2021 will be important for occupiers to commit to future office spaces with some additional flexibility / benefits. The CBDs, which were otherwise full with occupiers, have now got vacancies in some buildings that are available today at lower rentals than before," said Bhupindra Singh, managing director, Regional Tenant Representation & Office Services (North) at Colliers International India.