Delhi, 4 May 2021:The overall office market in Delhi NCRwitnessed a net absorption[1]increase of 5% in Q1 2021 quarter-on-quarter (Q-o-Q), with 1.07million sq. ft,according to JLL Office Market Update – Q1 2021.Noida contributed 55% of the net absorption, backed by strong pre-commitment in the new completions followed by Gurugram followed with a contribution of 38%. Select big-ticket transactions in Gurugram and Noida areas contributed substantially to the leasing activity. There were few relocations by occupiers in a bid to reduce real estate cost and obtain fresh office spaces on attractive lease terms. IT/ITES, BFSI, Healthcare, legal and consulting firms dominated leasing during the quarter.
Healthy leasing activity was recorded in Delhi NCR office market
Q2 2020
|
Q3 2020
| Q4 2020 | Q1 2021 | Growth (%) Q1 2021 over Q4 2020 | |
Net absorption (mn sq. ft) | 0.50 | 0.20 | 1.02 | 1.07 | 5% |
New completions (mn sq. ft) | 1.94 | 0.22 | 1.35 | 4.01 | 197% |
Vacancy (%) | 28.0 | 27.9 | 27.9 | 29.3 | – |
Rent (INR/sq. ft/month) | 78.5 | 78.8 | 78.7 | 78.2 | -0.7% |
Source: Real Estate Intelligence Service (REIS), JLL Research
“Delhi NCR continues to be a vibrant location for the office market with well-established submarkets and corridors. While Gurgaon and Noida have taken the lead in terms of development and infrastructure, the city itself continues to remain a highly preferred location. In total, eight projects totaling 4 million sq. ft were added to the stock which stood at 129 million sq. ft at the end of the quarter,” Manish Aggarwal, MD, Delhi NCR, JLL India.
“NCR office market remains one of healthy commercial office space take-up and strong demand from IT/ITES, BFSI and law firms has fueled the growth momentum thereby showing strong commercial growth in the capital city,” he further added.
The vacancy rate stood at 29.3% as at the end of quarter, increasing by 140 bps over the previous quarter. Vacancy levels rose in select prominent prime business districts where occupiers either downsized current occupancies or shifted to locations with relatively lower rents. Rents remained stable with developers offering increased rent-free periods on a case-by-case basis. It is expected that rents will continue to remain rangebound in the short-term as leasing momentum in the next few quarters will mainly hinge on the containment of the second wave of COVID-19 cases.
The overall office market in India witnessed a net absorption[2] decrease of 33% in Q1 2021 quarter-on-quarter (Q-o-Q), with 5.53 million sq. ft leased during Jan to March 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.
Net absorption dips after a two consecutive quarter rally
| City | Q2 2020 (mn sq. ft) | Q3 2020 (mn sq. ft) | Q4 2020 (mn sq. ft) | Q1 2021 (mn sq. ft) | Growth (%) Q1 2021 over Q4 2020 |
| Bengaluru | 0.45 | 2.72 | 1.37 | 2.22 | 61% |
| Chennai | 0.10 | 0.21 | 0.86 | 0.37 | -57% |
| Delhi NCR | 0.50 | 0.20 | 1.02 | 1.07 | 5% |
| Hyderabad | 1.18 | 1.54 | 2.83 | 1.09 | -61% |
| Kolkata | Negligible | 0.023 | 0.15 | 0.04 | -73% |
| Mumbai | 0.45 | 0.28 | 0.96 | 0.24 | -74% |
| Pune | 0.64 | 0.46 | 1.05 | 0.50 | -53% |
| Total | 3.32 | 5.43 | 8.24 | 5.53 | -33% |
Source: Real Estate Intelligence Service (REIS), JLL Research
“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 Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL. “While net absorption is likely to hover around 25-30 million sq ft. This will be at par with the net absorptionlevels witnessed during 2020,”he added.
Significant role of pre-commitments, leasing volumes [3] strong
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.
New completions maintain the growth spree
| City | Q2 2020 (mn sq. ft) | Q3 2020 (mn sq. ft) | Q4 2020 (mn sq. ft) | Q1 2021 (mnsq ft) | Growth (%) Q1 2021 over Q4 2020 |
| Bengaluru | 0.0 | 4.70 | 2.30 | 4.33 | 88% |
| Chennai | 0.0 | 0.0 | 2.99 | – | – |
| Delhi NCR | 1.94 | 0.22 | 1.35 | 4.01 | 197% |
| Hyderabad | 2.38 | 3.33 | 3.72 | 2.20 | -41% |
| Kolkata | 0.0 | 0.0 | 0.10 | – | – |
| Mumbai | 1.45 | 0.30 | 1.46 | 2.18 | 50% |
| Pune | 0.0 | 0.63 | 0.86 | 0.70 | -18% |
| Total | 5.77 | 9.18 | 12.78 | 13.43 | 5% |
Source: Real Estate Intelligence Service (REIS), JLL Research
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 ~13 million sq. ft witnessed during the historic year of 2019.
Vacancy in Grade A office space increases in most markets
| City | As of June 2020 (%) | As of Sep 2020 (%) | As of Dec 2020 (%) | As of March 2021 (%) |
| Top 7 cities | 13.1% | 13.5% | 14.0% | 14.9% |
Source: Real Estate Intelligence Service (REIS), JLL Research
Occupiers continue to review their real estate portfolios and are adopting consolidation and optimisation strategies in order torationalise space required while minimising costs. 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. Despite the rise in vacancy levels, Bengaluru, Chennai and Pune continued to hover in single digits.
Rentals across markets remain stable
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.
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.
[1]Net Absorption includes fresh leasing in existing buildings and pre-commitments in the buildings that are getting operational in the quarter, and excludes exits/terminations, churns, renewals and pre-commitments in future supply.
[2]Net Absorption includes fresh leasing in existing buildings and pre-commitments in the buildings that are getting operational in the quarter, and excludes exits/terminations, churns, renewals and pre-commitments in future supply.
[3]Gross leasing volumes (GLV) / leasing momentum includes fresh leasing in existing buildings, pre-commitments in under construction buildings and churns, and excludes renewals.
