Mumbai, October 2020: India’s office market witnessed a net absorption of 5.4 million sq. ft. in the quarter ending September 2020 (Q3), an increase of 64% versus quarter ending June 2020 (Q2). This is an encouraging trend especially after net absorption dipped almost at a similar rate in the second quarter, according to JLL Research.
The third-quarter office rebound growth was led by Bengaluru and Hyderabad, which together accounted for nearly 80% of the net absorption in Q3 2020. The heightened activity in Bengaluru indicates a gradual resurgence in take-up of spaces coupled with the translation of pent up demand from Q2 this year.
Net absorption1 gaining pace
| Q2 2020 (mn sq ft) | Q3 2020 (mn sq ft) | Growth (%) – Q3 2020 over Q2 2020 | |
| Bengaluru | 0.45 | 2.72 | 504% |
| Chennai | 0.10 | 0.21 | 110% |
| Delhi NCR | 0.50 | 0.20 | -60% |
| Hyderabad | 1.18 | 1.54 | 31% |
| Kolkata | Negligible | 0.02 | – |
| Mumbai | 0.45 | 0.28 | -38% |
| Pune | 0.64 | 0.46 | -28% |
| Total | 3.32 | 5.43 | 64% |
Source: Real Estate Intelligence Service (REIS), JLL Research
“While we continue to see the impact of the pandemic on various businesses, there is a significant surge in activity across most office markets under consideration. This is seen in gross leasing which more than doubled from the previous quarter at 13.8 million sq ft. At the same time, it is important to note that large and mid-sized occupiers across major markets continue to review their real estate portfolios in a bid to optimise cost, higher emphasis is being given to sustainability and employee well-being as well as the adoption of flexible working practices.” said Ramesh Nair, CEO and Country Head, India, JLL.
While the share of IT/ITeS occupiers in gross leasing2 dipped to 43% in Q3 2020 from 61% in Q2 2020, e-commerce and manufacturing sectors gained significant shares during the third quarter forming 16% (negligible in Q2 2020) and 17% (5% in Q2 2020) respectively, owing to the surging demand of e-commerce during COVID19.
Confidence in new completions
New completions during Q3 2020 increased by 59% quarter-on-quarter with 9.2 million sq ft of new stock coming to market. “With lockdown restrictions being relaxed in the third quarter in most of the markets under review, office projects
1 Net absorption refers to net office space take-up during the quarter.
2 Gross leasing refers to total office space take-up and includes precommitment in upcoming office buildings and excludes renewals
in the final stages of construction or pending receipt of occupancy certificates came onboard. This resulted in an increase in the supply of office space, even surpassing 8.6 million sq. ft. witnessed in Q1 2020,” said Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.
New completions rebound
| Q2 2020 (mn sq ft) | Q3 2020 (mn sq ft) | Growth (%) – Q3 2020 over Q2 2020 | |
| Bengaluru | 0.0 | 4.70 | – |
| Chennai | 0.0 | 0.0 | – |
| Delhi NCR | 1.94 | 0.22 | -89% |
| Hyderabad | 2.38 | 3.33 | 40% |
| Kolkata | 0.0 | 0.0 | – |
| Mumbai | 1.45 | 0.30 | -79% |
| Pune | 0.0 | 0.63 | – |
| Total | 5.77 | 9.18 | 59% |
Source: Real Estate Intelligence Service (REIS), JLL Research
In sync with net absorption, Bengaluru and Hyderabad led the increase in new completions accounting for 87% of the total new completions in Q3 2020. Notably, new completions in both these markets even went past the average new completion levels witnessed in the four quarters of 2019.
Vacancies go up in Grade A offices
Increased office space consolidation and optimisation strategies of corporate occupiers resulted in subdued net absorption levels, which could not keep pace with new completions. This resulted in overall vacancy increasing from 13.1% in Q2 2020 to 13.5% in Q3 2020. Despite the rise in vacancy levels in southern markets, Bengaluru, Chennai and Pune continued to hover in single digits. This augurs well for a strong rebound in these markets when economic and business conditions improve in the coming quarters.
Vacancy in Grade A office
| As of Jun 30 2020 (%) | As of Sep 30 2020 (%) | |
| Bengaluru | 5.3% | 6.5% |
| Chennai | 7.9% | 7.6% |
| Delhi NCR | 28.0% | 27.9% |
| Hyderabad | 9.2% | 11.3% |
| Kolkata | 26.4% | 26.3% |
| Mumbai | 13.4% | 13.4% |
| Pune | 4.4% | 4.7% |
| Total | 13.1% | 13.5% |
Source: Real Estate Intelligence Service (REIS), JLL Research
Rentals across markets remain stable
Except for Bengaluru which witnessed a marginal increase in rents, office rents in Q3 2020 vs Q2 2020 remained stable across all markets under review. With stable rental values and low vacancy levels, the office market in India continues to be landlord favourable. However, it is important to note that landlords across markets have become more flexible in providing increased rent-free periods, reduced rental escalation and fully furnished deals to prominent occupiers which reduces their net outgo.
