Covid 19 pandemic drags demand for office space down by 30 per cent in Q1 2020

BENGALURU: Net absorption of office spaces in India in Q1 2020 witnessed a decline of 30% from the peak observed in Q1 2019 due to the on going health crisis globally. The last such drop was seen in Q1 2017, post demonetisation.

Office absorption in Q1 2020 was backed by strong pre-commitment levels in new completions during the quarter. The quarter witnessed a net absorption of 8.6 mn sq ft of Grade A office space, out of which pre-commitments accounted for 4.9 mn sq ft, said JLL.

The impact of the COVID-19 pandemic became more apparent in March as most businesses defer their real estate decisions. IT- ITeS (56%) as well as co-working (13%) occupiers drove leasing activity during the quarter.

“The evolving COVID-19 crisis is prompting corporates to re-evaluate their commercial real estate strategies, with a focus on enhancing resilience measures. There will be a greater emphasis on cost management, employee wellbeing and sustainability, and the adoption of flexible working practices as resilience practices ramp up,” said Ramesh Nair, CEO & Country Head, JLL.

Furthermore, construction activity and the process of obtaining requisite approvals from the government also slowed down in the beginning of March, in line with growing concerns of the impact of COVID-19. “New completions were recorded at 8.6 mn sq ft in Q1 2020, a fall of 40% Y-o-Y from levels observed in Q1 2019 and representing the second largest dip witnessed in new completions in the last five years. Post demonetisation, new completions dropped to less than 20% of that seen in Q1 2016,” adds the report.

The three larger markets of Bengaluru, Mumbai and Delhi NCR accounted for nearly 75% of the net absorption in Q1 2020, despite the overall decline in the overall market. Net absorption in Mumbai and Chennai more than doubled in Q1 2020 as compared to Q1 2019, led by strong leasing activity in the first two months by IT/ITeS occupiers.

”The strong leasing momentum of 2019 continued in the first two months of 2020 before the pandemic impacted the Indian market in March. Several leasing deals in the final stages of negotiation were deferred as the office market witnessed a net absorption decline of 30% y-o-y. New completions also saw a fall of 40% y-o-y during Q1 2020. Several office assets in the final stages of completion were stuck owing to delays in obtaining requisite approvals from the government authorities,” said Samantak Das, Executive Director and Head of Research, REIS, JLL.

The consultancy firm said that over the next few months, leasing is expected to be mainly driven by renewals and consolidation activity. With fresh take up of spaces likely to be limited, landlords might have to sit on locked in capital (completed buildings) for a relatively longer time period. Business continuity plans and remote working strategies have been successful. Hence, future demand from occupiers is likely to take into account the need for flexible workspace.

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