Net absorption of office spaces declines 45% in 2020: Report – ET RealEstate

NEW DELHI: The office market in India reached its peak in 2019, with net absorption of Grade A spaces crossing 46 million sq ft and new completions breaching the 50 million sq ft mark. In 2020, the net absorption of office spaces was 25.5 million sq ft, registering a 45 per cent drop while new completions reached 36.4 million sq ft, recording a 27 per cent decline, according to a recent report by JLL India

The year 2021 is expected to witness close to 38 million sq ft of new completions, while net absorption is likely to hover around 30 million sq ft, the report added.

The Covid-19 pandemic and subsequent containment measures brought about unprecedented challenges for the office sector in the second quarter of 2020. Corporate occupiers were forced to adopt work from home practices and reimagine their workplace strategies. Major real estate decisions were delayed, hampering demand.

Additionally, a cautious approach to capital expenditure was adopted. These changes are likely to shape the future of the office market in India. A future-fit organisation will be characterised by a hybrid work model including home offices, flexible workspace, satellite offices, and headquarters.

Moreover, companies are rethinking their office locations and evaluating the feasibility of establishing a network of offices spread across different locations.

Vacancy in Grade A office spaces in India have stayed below the 15% mark since 2017. Even during a pandemic riddled year, vacancy increased marginally and is expected to remain range-bound in 2021 as well. Given the range-bound vacancy levels, office rents in 2020 remained stable across the seven major office markets in India.

Flexible workspaces

The Indian flex space market grew at a CAGR of about 50% between 2017 and 2019, accounting for as much as 14% of the leasing activity in 2019. This growth was halted by the pandemic in 2020.

The current market penetration of flex spaces in total office space stands at about 3%. In 2021, India is expected to witness deeper penetration of flex spaces as corporate occupiers continue to shift away from long-term capital intensive commitments.

JLL India expects the size of the flex space market to reach nearly 39 million sq ft in 2021.

Investment opportunity

Institutional investments in Indian real estate saw definite short term pullback during the first three quarters of 2020. Most investors remained cautious as asset pricing and revenue stability became challenging, leading to a sharp reduction in the number of deals.

However, large portfolio deals during the last quarter led to total investments of USD 5 billion during 2020, marginally lower than the previous year.

Investors are likely to focus on assets with higher yields and lower rental growth to ensure stability of income. According to JLL India, there is Rs 55 billion investment opportunity in upgradation of office spaces in India.

Listing of new REITs is expected to provide opportunities for institutional investors to build asset portfolios or co-invest with existing platforms before the IPO. The provision of the Union Budget 2021-22, allowing to raise debt from foreign portfolio investors at low cost will lead to more asset acquisitions by REITs. Office assets are expected to
the preferred option due to stable rental yields and income visibility.

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Net absorption of office spaces dips 44% in 2020: JLL India – ET RealEstate

NEW DELHI: In 2020, the net absorption of office spaces in top seven cities dipped by 44% when compared to 2019, according to JLL India. In 2019 the net absorption crossed 46 million sq ft while in 2020 it has reached about 25.82 million sq ft.

In the Jan-March 2020 quarter the net absorption was 8.80 million sq ft which saw a drastic drop in the following two quarters: 3.32 million sq ft in Apr-Jun 2020 and 5.43 millon sq ft in Jul-Sep 2020 quarter. In Oct-Dec quarter, however, the absorption improved to 8.27 million sq ft, according to JLL research.

Hyderabad led the pack with the highest net absorption in Q4 2020. While the southern markets of Bengaluru and Hyderabad accounted for more than 50% of the net absorption in Q4 2020, maximum increase in net absorption (when compared to Q3 2020) was witnessed in Mumbai, Delhi NCR and Chennai.

The increase in net absorption was driven by pre-commitments in new completions during the quarter. 56% new completions were already pre-committed.

While IT/ITeS continues to form a majority proportion, leasing activity is being driven by increased demand for office spaces from sectors such as e-commerce, healthcare and FMCG.

JLL India feels work-from-home concept which has been adopted as an alternative by corporate during 2020 could be, at best, a supplement to the traditional way of working from office and could impact the office market demand by an estimated up to 20% in the medium to long term.

This dip will be counter-balanced by increasing demand for office spaces from emerging sectors like healthcare, e-commerce and data centres.

On an annual basis, new completions across the top 7 cities dipped by 30% to about 36.34 million sq ft in 2020 as compared to 51.62 million sq ft in 2019. New completions during the October-December quarter were recorded at 12.78 million sq ft.

โ€œThe year 2021 is expected to witness close to ~38-40 million sq ft of new completions, while net absorption is likely to hover around 32-35 million sq ft,” said Dr. Samantak Das, chief economist and head of research & REIS, India, JLL.

Occupiers, however, continue to review their real estate portfolios and are adopting consolidation and optimisation strategies through the year. The relatively subdued net absorption levels could not keep pace with new completions. This resulted in overall vacancy increasing from 13.5% in Q3 2020 to 14% in Q4 2020.

Office rents in 2020 remained stable across the major office markets in India. With stable rental values, range-bound vacancy levels and limited upcoming Grade A supply across key markets, the office market in India continues to be landlord favorable. Hence, reduction of headline rents is not a popular phenomenon and rents are expected to remain stable in the short to medium term.

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