COVID-19 pandemic and subsequent lockdown has affected the office leasing space significantly across seven major urban areas in India.
A report by Colliers International Office states that gross absorption across top 7 cities plunged 36% year-on-year (YoY) to 16.7 million square feet (sq. feet).
Most of the deals that were likely to happen in Q2 of 2020 were deferred to subsequent quarters, or are under reconsideration. This is because occupiers zero in on their business continuity plans and work space readiness during the lockdown as they gradually consider reopening offices. It's a wait-and-approach by them.
Meanwhile, Delhi-NCR is expected to surpass Hyderabad to jump to second position by the end of this year (2020), the Economic Times reported the study as saying.
It mentioned that, on the supply front, the first half of the year witnessed around 24.1 million sq. feet of project completions, which is a 2% increase. This growth was led by project completions in Delhi-NCR, Bengaluru, and Hyderabad.
"Office market has been the flag bearer of consistent and highest returns amongst all real estate asset classes in India for quite some time; the market today, needs to read the Occupiers' challenges and customise solutions for a win-win coexistence", said Sangram Tanwar, Managing Director , Mid- India at Colliers International in the report.
The study further stated that, during the first half of 2020, leasing in Bengaluru dipped around 33% YoY to 5.4 million sq. feet, from the corresponding period last year.
The greater part of this fall was due to the loss of business activity in Q2 of 2020, caused by the coronavirus-induced lockdown in the city. Although some deals that were in the pipeline have been deferred, Bengaluru continued to witness some large ones, as scheduled.
Furthermore, (on the supply front) around 6.9 million sq. feet became operational during the first half of 2020, a fall of 13% YoY.
"Market fundamentals in markets with low vacancy levels has not changed much in terms of rentals and it continues to be developer-centric. We do not foresee much change in the long run", said Arpit Mehrotra, Managing Director, South India (Office Services) at Colliers International India.
Hyderabad and Chennai also saw leasing slump by 62% and 32% YoY because of the sluggish absorption of office space.
Delhi-NCR, on the other hand, witnessed a dip in office leasing by 27% YoY to 3.2 million sq. feet while, Mumbai saw the sharpest drop in the same at 53% to 1.9 million sq. feet, the report highlighted.
"After a historical high in 2019, leasing is likely to see a dip this year, and we forecast about 38 million square feet of gross leasing for 2020, before rebounding next year, led by the technology sector. Post the initial unrest, we believe occupiers should return to their drawing boards to revisit their space requirements, keeping facets such as densification, health, and wellness at the core of the decisions", said Megha Maan, Senior Associate Director, Research, Colliers International.
Nevertheless, the market is seeing some uptick in demand as large tech and e-commerce companies look to rent large office spaces across tech centres in India.