PremiumBENGALURU: Net office absorption in the country stood at 4.39 million sq ft during the April-June quarter, down 16% sequentially, as the second wave of the covid-19 pandemic resulted in regional lockdowns and workplaces remained mostly closed.
The overall commercial office market witnessed net absorption of 9.63 million sq ft between January and June 2021, down 19% year-on-year, according to property advisory JLL’s Office Market Update-Q2, 2021. Bengaluru and Pune accounted for nearly 60% of the absorption during H1 2021. These two markets along with Kolkata were the only ones which witnessed a growth in net absorption in first half of 2021 compared to H1 2020.
Due to a steady pipeline of office assets, the demand-supply gap has also widened. Vacancy levels across the top seven markets rose to nearly 16% at the end of the April-June quarter breaching the comfort zone of 13-14% for the first time since 2017.
Nevertheless, with demand expected to pick up in the coming quarters, vacancy is likely to return to sub 15% levels, JLL said.
“It is important to note that pre-leasing commitments have been largely intact and there have been limited downsizing activities by larger corporates. Corporate occupiers are holding on to office spaces with the belief that as vaccination drives accelerate, occupancy at offices will start to improve," said Rahul Arora, head of office leasing advisory, JLL India.
Project completions during H1 2021 were recorded at 25.11 million sq ft, up 75% year-on-year, that show that developers are confident of a strong revival in office leasing activity once business as usual is reinstated, Arora said.
In the second half of the year, if the country can ensure that most of the active workforce gets fully vaccinated, the shift back to office premises will be more feasible and sustainable, JLL noted.
Physical occupancy in offices has been significantly low since the outbreak of the pandemic last year but was inching towards normalcy in the beginning of this year. The second wave has once again created uncertainty not only in the demand for office space but also the sentiment of large multi-national occupiers and their keenness to take up new space in India.
“Compared to the big dip that we had seen in Q2 2020 (April-June) due to the first wave, the market showed more resilience in Q2 2021 when hit by the second wave. IT/ITeS occupiers continued to account for a majority of the office leasing activity in 2020 at around 50%. In 2021, we expect the IT/ITeS sector to remain the key occupier group while demand from emerging sectors such as e-commerce, manufacturing and healthcare is likely to increase further," said Dr. Samantak Das, chief economist and head research and REIS, JLL.
Office rentals remained stable across the major office markets in Q2 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.
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