After a record high in 2019, overall office leasing in 2020 saw a drop of almost 51% as compared to the previous year. While office absorption in 2019 stood at 55.7 million sq ft and 57.7 million sq ft including pre-commitments, the previous year saw around 47.3 million sq ft, said international property consultancy firm Savills India.
Interestingly, of the total office leases in 2020, around 57% comprised large deals of more than 1 lakh sq ft a deal.
Bengaluru posted maximum office absorption with 6.8 million sq ft space take up in 2020. Despite a drop of 56% as compared to last year, the city led the overall leasing across the top six cities. Following Bengaluru closely, Hyderabad registered leasing of 5.4 million sq ft in 2020.
Hyderabad took over NCR while the latter stood at the third place with around 4.4 million sq ft absorption in 2020. Like the previous year, the top three cities of Bengaluru, Hyderabad and NCR constitute around 61% of the total leasing activity in 2020 as well.
Mumbai, India’s financial capital, recorded around 2.9 million sq ft leasing through the year – the least absorption witnessed among the six cities, while Chennai witnessed a decline of around 29%.
“The overall story of 2020 is the one of survival, and most markets did exactly that. While the story of Indian office market in 2020 may not be as glorious as it was in 2019 and 2018, it still continues to strive and display resilience, in the face of COVID-induced slowdown. The fundamentals of Indian economy remain intact and we continue to witness strong leasing traction in sectors like warehousing and industrial. Now with vaccine in sight and businesses poised to gain momentum, we can expect to reach pre-COVID 19 levels soon,” said Anurag Mathur, CEO, Savills India.
In terms of sectoral take up, information technology continues to remain the major occupier of office market in India in 2020 constituting 51.7% of total leasing as against 46.3% in 2019. Similarly Banking, Financial Services and Insurance (BFSI) occupiers’ share during the year was higher at 14.3% compared to 10.6% in 2019.
Engineering and manufacturing, as well as transport and logistics, two of India’s growing sectors accounted for 7.8% and 3% respectively, which was more than double of their respective shares in 2019. These two recorded a growth in terms of space take-up in 2020 unlike any other segments.
On the other hand, co-working segment’s share declined to 8.5% in 2020 from 14% in 2019 as a result of occupiers widely adopting work from home policy.
“IT and ITes remain major drivers of office market in India. Though for most part of the year, occupiers strongly practiced the Work-from-Home concept to ensure safety of their employees, office market saw some large-scale transactions. Sectors such as engineering and manufacturing, as well as transport and logistics even increased their share of the pie giving rise to the hope that the Indian office market space has weathered the storm and will come out of this stronger expecting a robust growth in 2021,” said Arvind Nandan, Managing Director, Research and Consulting, Savills India.
The overall vacancy levels have marginally increased to 11.7% in 2020 on a pan-India average as new supply exceeded the pace of leasing.
The year saw a 35% on-year dip in new completions, with NCR, Pune and Mumbai witnessing a drop of 60%. Bengaluru and Hyderabad saw relatively lesser decline of 14% and 21%, respectively.
Interestingly, Chennai maintained a similar level of completions at about 3.6 million sq ft during the year. Bengaluru, Hyderabad and NCR together comprised 80% of new completions as most supply that had come was committed in previous years.
The rental value change across micro-markets varied within a city compared to last year, with an average on-year decline of around 7% in NCR, while Chennai and Hyderabad saw a 3% decrease.
However, Mumbai and Pune markets sustained similar rental ranges as last year. Mumbai, despite its low leasing volumes, its vacancy fell by only 1% from 2019 and delicately balancing its rentals at the same levels.