Gurugram, 01 April 2020 – The year 2020 started off on a positive note, with relatively lower impact from the ongoing COVID-19 that began spreading faster post mid-March. During Q1 2020, office gross absorption across the top seven cities rose marginally by 4% to 12.2 million square feet (msf). The effect of COVID-19 on the market was seen from March, and hence has not impacted the market largely till now. Bangalore accounted for about 30% of the total gross absorption, followed by Pune with a 18% share and Delhi-NCR with a 15% share.
Total supply rose 1% YOY to 13.2 msf with developers focusing on completing projects especially with existing pre-commitments and attaining the occupancy certificates.
“While Indian market is likely to see adverse impact from the ongoing COVID-19 pandemic, India is relatively better placed in terms of economic growth, with GDP expected to grow at 4.4%. Going ahead, demand from resilient sectors such as technology should be stable, with pharmaceuticals, ecommerce and logistics sectors also increasing,” said Sankey Prasad, Managing Director and Chairman, Colliers India.
“While the first quarter of the year has started on a positive streak, we expect overall leasing in upcoming couple of quarters to be slow, led by delayed decision making by occupiers. Hence, we are projecting gross absorption of 45-50 msf this year, lower than 2019.” said Megha Maan, senior associate director, Research, Colliers.
Across the seven major cities, the IT-BPM sector continued to dominate the leasing activity in Q1 2020 accounting for 55% share in leasing. Flexible workspace operators accounted for about 15% of the gross leasing in Q1 2020. Bangalore remained the market leader, with leasing of 3.7 msf, was led by the strong expansion by technology companies in the city. The technology and IT-BPM sector accounted for 58% of the total leasing, with few occupiers taking up large spaces for their expansion. The flexible workspace sector accounted for 11% of the gross absorption in the city. However, new supply in the city dropped 5% YOY to 4.2 msf. Surprisingly, Pune’s gross absorption zoomed 90% to 2.2 msf during Q1 2020, bringing the city to the 2nd position. The leasing activity was driven by absorption of pre-committed spaces by technology occupiers garnering a 77% share in overall leasing, and majorly expanding their footprint into IT developments in the micromarket of SBD West (Baner).In Delhi-NCR, the gross absorption rose 21% YOY to 1.8 msf. The technology and IT-BPM sector accounted for 57% of the leasing, followed by flexible workspace with a share of 19%. During the quarter, NCR saw supply infusion of 2.6 msf.
In light of the spread of COVID-19 in India and the current lockdown, we expect the following over the next three months:
- India’s information technology and business process management (IT-BPM) sectors among others are reviewing business continuity plans. We believe that business operations of call centres and IT service companies are particularly impacted. Hence, occupiers must focus on building data capabilities to enable remote working.
- In a scenario that the current lockdown is extended, productivity of global in-house centres could be severely impacted. If the COVID-19 outbreak in India is not contained, and business operations suffer, we expect occupiers to initiate renegotiation of leases or ask for some relief from developers/landlords over elements such as lock-in amount, fixed deposit, to cope with likely increased financial pressure.
- We foresee occupancy levels in flexible workspaces to stay muted in March and April as the risk exposure is higher than in traditional offices.
- City wise gross leasing in Q1 2020 (in msf).
Source: Colliers International India
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