Office Space Leasing Picks Up In Q3 2020

Office Space Leasing Picks Up In Q3 2020
Oct 2020 , by , in Interviews

Colliers Report

Commercial office absorption is picking up across the top six Indian cities, with Q3 2020 gross absorption at 6.5 million square feet (msf), up 58% QOQ. The rise in leasing activity signals that occupiers are returning to the drawing board to close ongoing deals that were stalled earlier.

Despite adversity, the real estate sector has shown remarkable comeback in the last few months. Whilst we are still far from achieving the previous year’s activity levels, when compared to second quarter of this year, activities for Q3 2020 have shown substantial revival. Occupiers continue to review their real estate portfolio and keeping a close watch on employee productivity. Landlords are showing lot of flexibility and willingness to work much closely with Occupiers during these tough times, as per the report.

Occupiers are now evaluating smaller offices in various locations akin to the hub-and-spoke model, instead of large consolidated spaces, and even de-densifying existing offices so that employees can adhere to social distancing norms. MNCs continue to be bullish about the market, with cities like Bengaluru and Hyderabad continuing to see pre-commitments. \

The recent strong response to the REIT listing by Blackstone-backed K Raheja Corp, and the built-up anticipation for Brookfield’s planned REIT issue are a testament to the stability and continued attractiveness of the commercial office sector.

Between January-September 2020, Bengaluru accounted for 30% of the total gross absorption, followed by Delhi-NCR and Hyderabad with about 17% share each.

City 2020 Gross absorption share

  1. Bengaluru 30%
  2. Chennai 10%
  3. Delhi-NCR 17%
  4. Hyderabad 17%
  5. Mumbai 13%
  6. Pune 13%

*Note: Gross absorption does not include lease renewals, pre-commitments/LOIs

The appetite for sustainable commercial real estate is expected to strengthen, especially for those looking at more stable rental revenues. Traction from private equity capital, especially in core assets, will strengthen further due to volatility in other segments. We also expect real estate investment trusts (REIT) to continue to gain traction, even though there will be greater scrutiny on quality of assets, sustainability elements and portfolio resilience.

Colliers projects gross absorption in Q4 2020 to double from Q3 2020, as offices and businesses open further and occupiers return to the drawing board to plan their real estate portfolio. Consequently, for the full year 2020, Colliers revised its’ forecast of gross absorption at 36.1 msf, led by projected 26% higher activity in H2 2020 from H1 2020.

However, this is likely to be 37% lower than 2019 when gross absorption touched a new high. We believe that businesses will still not be able to operate at 100% occupancy by the year end and thus absorption will not go up to 2019 levels. For the full year, Bengaluru is likely to lead leasing as occupiers continue to close deals in the southern city, with Delhi- NCR and Hyderabad following behind.

On the supply front, Q3 2020 saw about 4.1 msf of project completions, led by project completions in Hyderabad that accounted for 53% of the total supply. During Jan-September 2020, project completions fell 12% YOY to about 29.7 msf due to the lockdown and return of migrant labourers to their hometowns and villages.

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