Q4 2020 was a crucial quarter as it marked a recovery momentum with leasing indicators trending favourably compared to the previous couple of quarters. In a time of change with COVID upending the workplace playbook, the leasing trends and occupier strategies are undergoing a rapid shift and will have a bearing on market activity. Even as the COVID scenario was evolving and occupiers continued with evaluating their real estate portfolios and charting their space requirements, almost all the cities saw heightened levels of market activity with expansion driven demand making a comeback of sorts as well. Mumbai, Pune, Delhi NCR, Ahmedabad, and Kolkata have witnessed higher fresh leasing activity for expansion and consolidation during the last quarter of the year. This augurs well for the leasing momentum in 2021, which is likely to get broad-based across cities with introduction of a vaccine and a gradual return to the workplace providing the much-needed push to market activity.
In this report, we analyse the Indian office markets’ performance in Q4 as well as during the full year of 2020.
Key Highlights – Q4
- 12.06 msf gross leasing volume in Q4 2020, 19.9% lower q-o-q and a y-o-y contraction of 51.4%
- Bengaluru and Mumbai were the most active commercial markets in terms of leasing activity, accounting for 27.1% and 18.3% of pan-India gross leasing volumes in Q4, followed by Delhi-NCR with a share of 17.3%.
- Sectoral contribution in leasing witnessed a change during the last quarter of the year. While IT-BPM accounted for the highest share (20.6%) in overall leasing, captive centres (GCCs) contributed 14.0%, but saw a q-o-q decline of nearly 48% in their share. The share of BFSI rose by 500 bps to 15.4%, while the Flex workspace segment which was muted during the last two quarters, accounted for 10.6% of gross leasing in Q4, significantly higher than 3.9% in the previous quarter.
- New completions in Q4 2020 were recorded at 13.17 msf, a 56.0% q-o-q growth with Chennai leading with a 21.5% share followed closely by Delhi-NCR (21.2%) and Bengaluru (16.3%). There was a 31% y-o-y growth in Q4 2020 in new supply comparison to that in Q4 2019 and was backed by healthy pre-commitments with developers aiming to complete/prioritise projects which are entirely or partially pre-leased.
- Net absorption of 6.49 msf in Q4 2020 was a robust growth of 144.8% on a quarterly basis, indicating recovery momentum in occupier sentiment and decision-making for executing space strategies.
Key Highlights - 2020
- Gross leasing volumes for 2020 stood at 50.4 msf, a 28.5% decline on a y-o-y basis, largely as a result of the COVID disruption and the ensuing lockdown. After a robust start in Q1, while Q2 was a near washout, H2 showed encouraging signs of recovery. However, in gross leasing terms, H2 2020 was still lower by 29.2% as compared to H2 2019.
- For the full year 2020, leasing activity was led by Bengaluru, which accounted for 27.1% of annual gross leasing volumes followed by Mumbai and Delhi-NCR holding identical shares of 16.5% each.
- Through 2020, IT-BPM and captive centres (GCCs) continued to remain the dominant occupier sectors accounting for 27% (32% in 2019) and 21% (22% in 2019) respectively, while the share of Engineering & Manufacturing increased from around 8% in 2019 to 11% in 2020 and that of the BFSI segment increased from 5.5% in 2019 to 10% in 2020.
- Annual new completions stood at 39.10 msf in 2020, a decline of around 25% y-o-y due to slippages in project completion timelines during Q2-Q4 caused by labour and supply constraints. Bengaluru and Hyderabad accounted for 28.6% and 20% of the new completions in 2020 with higher pre-leased volumes in their newly completed projects.
- Net absorption for 2020 added up to 20.9 msf, recording a 54.6% decline from the previous year with occupier exits as part of portfolio optimisation strategies causing an increase in vacancy levels.