Net absorption in office market dips 33% at 5.53 million sq ft in Q1 2021: JLL – ET RealEstate

NEW DELHI: The overall office market in India witnessed a net absorption decrease of 33% in Q1 2021 quarter-on-quarter (Q-o-Q), with 5.53 million sq ft leased during Jan to March 2021, according to a recent report by JLL India.

Bengaluru, Hyderabad and Delhi NCR accounted for nearly 80% of the net absorption during the quarter. Moreover, Bengaluru and Delhi NCR were the two markets which witnessed an increase in net absorption when compared to Q4 2020.

“While 2020 ended on a relatively high note, there was still uncertainty in the market with respect to resumption of business as usual. Occupiers continued to adopt a cautious approach and focused on reassessing their real estate portfolios and long-term commitments. To add to the woes, increasing fears of a spike in COVID-19 cases in the second half of March further pushed the occupiers to press pause again and postpone their real estate decisions,” said Samantak Das, chief economist and head of research & REIS, India, JLL.

“As the vaccination drive is gaining momentum and occupiers remain cautiously optimistic, the year 2021 is expected to witness close to 38 million sq ft of new completions, while net absorption is likely to hover around the 30 million sq ft with a marginal downward bias. This will be at par with the average annual net absorption levels seen during 2016-2018,” he added.

Pre-commitments in new completions played a significant role in driving net absorption. In the first quarter, 31% of the new completions during the quarter was already pre-committed. Maximum pre-commitment levels were observed in the southern markets of Bengaluru (51% of the new completions) and Hyderabad (45% of the new completions).

Interestingly, the larger market of Mumbai saw a massive jump in leasing volume from 0.5 million sq. ft in Q4 2020 to 1.6 million sq ft in Q1 2021. This was majorly driven by select large pre-commitment deals in upcoming spaces within the BFSI space.

Delhi-NCR saw a marginal increase in leasing volumes from 1.9 million sq ft in Q4 2020 to 2 million sq ft in Q1 2021.

New completions during Q1 2021 were recorded at 13.43 million sq ft, a marginal increase of 5% q-o-q. In sync with net absorption, the markets of Bengaluru, Hyderabad and Delhi NCR accounted for nearly 80% of the new completions during the quarter.

On a Y-o-Y basis, new completions across the top seven cities jumped by 56% from the 8.6 million sq ft recorded in Q1 2020. Interestingly, new completions even surpassed the average quarterly levels of about 13 million sq ft witnessed during 2019.

The subdued net absorption levels could not keep pace with new completions. This resulted in overall vacancy increasing from 14.0% in Q4 2020 to 14.9% in Q1 2021.

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Office markets in seven cities have potential space of 284 million sq ft: JLL – ET RealEstate

NEW DELHI: JLL believes that India’s current office markets across seven major cities have potential space of 284 million sq ft that could be securitised with an estimated value of Rs 2,62,800 crore.

“This estimate was based on buildings that meet two important criteria – single ownership and large floor space with high occupancy rate.

The office space led the pack among asset classes in India, with direct office transactions reaching USD 3.1 billion in 2020, underscoring its importance to future REIT listings in India,” said Dr, Samantak Das, chief economist and head research & REIS, JLL.

Bengaluru accounts for 31% or 88 million sq ft of REIT worthy asset, valued at Rs 81,468 crore. “The city, with large IT spaces housing global occupiers, will be the most favoured market for newly listed REITs, given that most assets are singly owned by developers or large funds, allowing for the aggregation of assets into managed structures,” according to JLL.

“India’s REIT evolution has been both rapid and revolutionary for the real estate sector. The fact that the closing of transactions was made possible even amidst a pandemic has demonstrated the maturity of the market and transformed India’s real estate corporate finance landscape and market liquidity,” said Priyank Shah, director, Capital Markets, Asia Pacific, JLL.

Several factors have given investors and regulators more confidence in the REIT space’s future in 2021 and into the future. The first two listed REITs’ healthy performance lowered the marginal cost of capital for Indian real estate.

Additionally, REIT sponsors successfully recycled capital post-listing through asset divestments and rationalisation of their equity stakes, which raised institutional groups’ confidence to acquire larger portfolios.

“As listed REITs grow organically and inorganically and more REITs get listed, these structural themes will become even more pronounced. Some major players are already building quality portfolios across diverse asset classes and we could potentially see more retail, warehousing and hotel assets in future REIT offerings as well,” said Regina Lim, head of Capital Markets Research, Asia Pacific. JLL.

Attractive tax structures and relaxing regulatory norms for sponsors aim to make Indian REITs more attractive to global equity investors and domestic institutional and retail investors.

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Saltmine raises $20 million from Jungle Ventures, JLL Spark & Xplorer Capital – ET RealEstate

NEW DELHI: Saltmine, a digital workplace platform, has raised $20 million Series A funding from JLL Spark, the strategic investment arm of JLL, Singapore-based Jungle Ventures and Xplorer Capital.

In addition to its capital investment, JLL has entered into an agreement to sell Saltmine’s software directly to its customers.

With the new financing from the Series A round, Saltmine will continue to invest in talent acquisition. In addition, this will also accelerate the firm’s growth in Asia Pacific – particularly in markets like Australia, Hong Kong and Singapore.

Founded in 2017, Saltmine has its headquarters in San Francisco. It is now looking at expanding its client base in India.

Saltmine also announced the appointment of Jim Baum onto its board of directors and Shawn Green as the company’s chief revenue officer.

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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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