Office leasing up 3x in Q2

Mumbai: Office gross absorption across the top six cities saw almost a three-fold rise to 14.7 million sq ft during second quarter of the current year, ending June 30, from the same period last year. Bizz Buzz interacted with the stakeholders to verify the facts. The strong streak seen at the beginning of the year continued in the second quarter unabated, rising 14 per cent QoQ. Pan-India absorption has already surpassed 27 million sq feet in the first half of the year, signalling a strong revival in occupier demand. All the major markets saw strong leasing activity during the quarter, driven by high occupier demand for large office spaces. Bengaluru led the leasing at 30 per cent share, while Mumbai and Delhi-NCR accounted for 19 per cent and 18 per cent share respectively.

"Clearly, office demand is well headed to close at 40-45 million sq ft by the end of this year. Resultantly, rentals are also likely to firm up in next two quarters as the occupancy levels rise," said Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers.

On a half-yearly comparison, Gross leasing Volume (GLV) at 24.8 million sq ft during H1 was up nearly two-times Y-o-Y and over 80 per cent of the H1 2019 numbers, as per JLL's office market update-Q2, 2022.

Gross leasing volume refers to all lease transactions recorded during the period, including confirmed pre-commitments, but does not include term renewals. Deals in the discussion stage are not included.

Bengaluru was top of the charts accounting for 34 per cent of the quarterly GLV, followed by Delhi NCR (30 per cent), Mumbai (12 per cent), and Chennai (11 per cent).

"The tech segment saw its share rise to 33 per cent from 25 per cent Q-o-Q, clearly outlining its continued dominance as the most prominent occupier segment in India's office sector. Manufacturing/ industrial continues to show impressive gains with a 13 per cent share of market activity backed by India's policy push yielding results in this segment. BFSI and consulting segments held shares of 10 per cent and 8 per cent, respectively. Flex continues to make rapid strides as a major occupier segment with its mainstreaming among occupier space strategies resulting in a share of 20 per cent in quarterly leasing activity. In fact, flex leased 2.8 million sq ft in Q2, the highest in 12 quarters and the H1 numbers are already 30 per cent higher than the annual flex space take-up for both 2020 and 2021 individually," said Rahul Arora, Head of Office Leasing Advisory India & MD - Karnataka & Kerala, JLL India.

Enterprises leased 39,000 seats in flex centers across the top seven cities during the Q2. This marks a new high as the quarterly number surpassed the total flex seats leased during the entire 2020, he added.

Bengaluru leads with over 12,000 seats taken up by enterprise, followed by Hyderabad with 8,000 and Pune with 6,500. Flex seats leased during H1 stand at just over 65,000 seats, like the annual numbers for 2019 and already 75 per cent of the 2021 number. The leasing of flex seats looks well on its way to crossing over 100,000 by end of the year.

"Over the next 12 months, 55-60 million sq ft of Grade A office space is likely to be completed across the top seven cities. Of this, institutional and top developers (based on city-level Grade A office space ownership and well-known national/regional brands) account for a 72 per cent share. The current pre-commitment rate for the total 12-month forecast supply now stands at 17 per cent. However, when we look at the superior grade supply (institutional players only), the pre-commitment rate rises to 31 per cent.

This clearly signals the flight to quality assets by major occupiers and offices remaining central to their workplace strategies. However, a slight weakening in the pre-commitment rate is symptomatic of a slowing demand momentum which may be visible over the next 6 to 12-month period and find effect over 2023, unless global headwinds start to ease off," said Dr Samantak Das, chief economist, and head research and REIS, India, JLL.

Net absorption was led by Bengaluru with a 48 per cent share, followed by Mumbai and Delhi NCR with near-identical shares of 16 per cent each. These three cities accounted for 80 per cent of total net absorption for Q2. Pune and Chennai had lower Q-o-Q net absorption also on account of zero supply additions during the quarter. Hyderabad saw lower net absorption due to poor pre-commitment rates in new completions. Market activity was also characterized by more relocation and consolidation activity while expansion-driven growth was slower. This is reflected in the higher gross leasing number not translating into a similar trend in net absorption.

Almost 45 per cent of the new supply infusion was pre-committed in Q2. A significant part of this came from new completions in Bengaluru where 95 per cent of the quarterly supply was pre-committed. Pre-commitment levels in Hyderabad and Mumbai were just 14 per cent and 20 per cent, respectively, signalling an impending cautious approach of occupiers due to the global headwinds and domestic countervailing factors which may see them evaluating their growth plans in a more fluid macroeconomic environment. There has been limited to no space downsizing activity by larger corporates during the quarter, continuing the trend visible over the past two-three quarters as greater certainty with controlled Covid infections fostering a hybrid return to workplace trend.