Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLLWhat have been the factors for low absorption of office spaces?While 2020 ended on a relatively high note, there was still uncertainty in the market with respect to resu
Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLLWhat have been the factors for low absorption of office spaces?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.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 JLL Office Market Update - Q1 2021. On a year-on-year (Y-o-Y) basis, net absorption in Q1 2021 stands at 64% of the levels witnessed in Q1 2020. 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.How are the future sentiments in the segment?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.What are the leasing trends for the near future?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). At the same time, it is important to note that the leasing momentum in some of the larger markets have remained promising in the first quarter of 2021. The quarter witnessed gross leasing volumes of 7.5 million sq. ft across the top seven markets. 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. Further, 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.What has been the Occupier’s behaviour?Occupiers remain cautiously optimistic about the future. The leasing momentum in the upcoming quarters will mainly depend on the time taken to contain the second wave of COVID-19 cases. However, it is important to point out a few things that give us confidence that there is light at the end of the tunnel.The increasing attendance in offices across the major markets before the second COVID-19 wave bears testimony to the confidence and commitment of corporates to get back to working from office. It is important that landlords continue to be receptive to the demands of tenants and offer flexible options, in terms of space as well as value.Office rents in Q1 2021 remained stable across the major office markets in India. With vacancy levels still below 15% and limited upcoming Grade A supply across key markets in the next few years, the office market in India continues to be tilted towards landlords. Hence, reduction of headline rents is not a popular phenomenon and rents are expected to remain range bound in the short to medium term. However, landlords continue to be accommodative to the demands of occupiers and are providing flexibility via increased rent-free periods, reduced rental escalation and fully furnished deals to occupiers to close deals.