Mumbai witnesses net absorption up 241% in Q4 2020 vs Q3: JLL
Mumbai witnessed net absorption increase from 0.28 mn sq. ft in Q3 2020 to 0.96 mn sq. ft in Q4 2020. East Suburbs accounted for 85% of the net absorption during the quarter, backed by pre-commitments in new completions. Leasing activity during the quarter was driven by occupiers from BFSI, consulting, IT/ITeS and manufacturing/industrial sectors. It is important to note that the net absorption in Q4 is still lower when compared to the average quarterly levels witnessed during 2016-18.
The last quarter of 2020 recorded new completions of 1.46 million sq. ft. Two new projects were completed during the quarter. In sync with net absorption, East Suburbs accounted for a major chunk (86%) of the new completions. Moreover, even on an annual basis, new completions in Mumbai increased in 2020.
“During the year, occupiers tried to realign their real estate strategies and reduce their real estate cost by renegotiating rents, reducing existing office space and relocating to buildings and / or submarkets with relatively lower rents,” said Karan Singh Sodi, Regional Managing Director, Mumbai, JLL India. Further, rentals also witnessed marginal increase during the quarter.
Sub-markets like BKC, Eastern and Western suburbs with low to moderate vacancy levels and quality assets enjoyed sturdy rentals. While reduction in headline rents was not a popular phenomenon, landlords have become more flexible in offering extended rent-free periods and the willingness to take up capex on fit outs for the occupiers.
India Office market continues recovery
India’s office market continues to recover witnessing a net absorption of 8.27 million sq ft, an increase of 52% in Q4 2020 (Oct-Nov-Dec) when compared to Q3 2020. Except for Bengaluru, net absorption of office spaces improved in the other six cities (Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai, Pune) according to JLL Research. Hyderabad led the pack with the highest net absorption in Q4 2020. While the southern markets of Bengaluru and Hyderabad accounted for more than 50% of the net absorption in Q4 2020, maximum increase in net absorption (when compared to Q3 2020) was witnessed in Mumbai, Delhi NCR and Chennai. Kolkata also witnessed a strong resurgence albeit on a lower base.
The increase in net absorption was driven by pre-commitments in new completions during the quarter. 56% new completions were already pre-committed. Moreover, office occupiers usually take a longer-term view while making leasing decisions and many occupiers are utilizing the current situation to get attractive deals from landlords. While IT/ITeS continues to form a majority proportion, leasing activity is being driven by increased demand for office spaces from sectors such as e-commerce, healthcare and FMCG.
The office real estate market was most impacted as lockdown measures disrupted the way we work. Corporates had to adopt work-from-home as an alternative, which brought in its wake, a new set of possibilities and challenges. Perceptions around the scale and potential of remote working changed. Earlier, the view was that remote working as a concept would not work in India. This changed with the remote working experiment proving to be fairly successful for a majority of the organizations. However, that does not mean that work from home presents a sustainable long-term solution for all corporates. It presents several physical and cultural challenges, more so for a country like ours with a large proportion of employees staying in multi-generational households. Work from home could be, at best, a supplement to the traditional way of working from office and could impact the office market demand by an estimated up to 20% in the medium to long term. This dip will be counter-balanced by increasing demand for office spaces from emerging sectors like healthcare, e-commerce and data centres. De-densification and splitting of offices are expected to further drive demand.
In another big sign of a continued recovery, new completions during the October-December quarter were recorded at 12.78 million sq ft., an increase of 39% when compared to Q3 2020. “The southern markets of Hyderabad, Chennai and Bengaluru accounted for a major chunk (71%) of the total new completions in Q4 2020. On an annual basis, new completions across the top 7 cities dipped by 30% to about 36.34 million sq ft in 2020 as compared to 51.62 million sq ft in 2019. This being said, it is important to point out that new completions surpassed the average annual levels of ~34million sq ft witnessed during 2016-18,” said Dr. Samantak Das, Chief Economist and Head of Research & REIS, India, JLL. “The year 2021 is expected to witness close to ~38-40 million sq ft of new completions, while net absorption is likely to hover around 32-35 million sq ft. This will be at par with the annual net absorption levels seen during 2016-2018,” he added.
Occupiers, however, continue to review their real estate portfolios and are adopting consolidation and optimisation strategies through the year. The relatively subdued net absorption levels could not keep pace with new completions. This resulted in overall vacancy increasing from 13.5% in Q3 2020 to 14.0% in Q4 2020. Despite the rise in vacancy levels, the markets of Bengaluru and Pune continued to hover in single digits. This augurs well for a strong rebound in these markets as economic and business conditions are expected to gradually improve in the coming quarters