A Stellar 194% Growth in Office Net Absorption on a Quarterly Basis

A 36% increase on a yearly basis in leasing with PAN India gross leasing volume at 52.6MSF

• The three megapolis cities – Bengaluru, NCR and Mumbai accounted for bulk ~60% of the leasing share 
• The overall stock of Grade-A office space in India stands at 631 MSF as of Q4-21, a growth of ~2.0% over the previous quarter and 6.2% from last year same period
• Demand for flex seats have been growing strongly with nearly 28,800 seats transacted in the Q4

Cushman & Wakefield released a report titled ‘India Office Market Beat’. According to the report, a strong recovery is underway in the Indian office space demand.  In Q4 2021, gross leasing stood at 16.2 MSF, which is 12.4% higher than Q3 2021 and 35.31% higher on a year-on-year basis. The three megapolis cities – Bengaluru, Delhi NCR and Mumbai accounted for bulk (~60%) of the leasing share.

Bengaluru’s contribution to PAN India leasing activity remained significant with the city accounting for a 20-25% share in both quarterly and annual gross lease volume. For Delhi/NCR, fresh leasing led the annual office demand with a 69% share, showcasing the improvement in occupier confidence. For the full year, GLV stood at 52.6 MSF at pan India level, close on the lines of what we had previously estimated of 50-51 MSF. This is an indicator to suggest occupiers are going ahead with expansion of office footprint citing recovery in business sentiments.

Sectoral share in leasing: Top three sectors that accounted for the largest share in leasing by volume includes IT-BPM (~30%), Flexible Workspace (19%), and Engineering & Mfg. (13%) sectors in Q4. Flexible workspaces share in volume has jumped significantly from quarterly average of 5.0% to a 19% share in the final quarter. Same three sectors account for the largest contributors when it comes to annual leasing volume too.

Net absorption stood at a record high with 9.8 MSF of quarterly demand entering the market in Q4, 2021 thereby registering a stellar 194% growth Q-o-Q and recorded a 58% growth Y-o-Y.  The growth in net absorptionreinforces our belief in the strong recovery that is underway in the Indian office space demand.

Nearly two-third of this demand came from just the two tech giant cities of Bengaluru and Hyderabad. For the full year 2021, net absorption remained intact from the previously estimated range at ~21 MSF. The report states that close to two-third of this demand came from India’s two tech giant cities - Bengaluru and Hyderabad. Occupiers are expected to go ahead with expansion of office footprint citing recovery in business sentiments as their motivator.

New Supply: The last quarter witnessed a large quantum of new supply hitting the market with 12.6 MSF coming in. Bengaluru, Pune and Hyderabad saw the highest supply during the quarter, both in terms of q-o-q growth as well as the absolute quantum of supply. With that, full-year new supply was recorded at over 38 MSF, slightly lower than our previous estimate of ~40 MSF. For the full year 2021, Hyderabad saw the largest addition of supply at 11.7 MSF, followed by Bengaluru. The two tech giant cities of India accounted for 57% of the new supply that entered the market in 2021. Owing to healthy pre-commitment levels in new supply, the vacancy rate did not see much impact. Overall, the India office market vacancy rose merely by 20-30 bps q-o-q in Q4-21.

Enterprise transacting in flex space hit a new high in Q4, growing strongly on the back of some occupiers trying to manage partial return-to-work of employees across many cities. With nearly 28,800 seats transacted in the fourth quarter, flex seat leasing shot up from an average of over 16,000 seats per quarter during Q1-Q3 period. Cities such as Bengaluru, NCR and Pune were the biggest contributors to flex seat take-up during the quarter. Corporates have been increasingly exploring flex space offices as it comes with benefits of shorter tenures, low capital investment, managed facility etc. Post pandemic, the demand for flex seats has been growing strongly. This explains the significant rise in office space take-up by flex operators in the fourth quarter.

Badal Yagnik, MD, Tenant Representation, India commented, “Despite a severe second wave in Q2-2021, India’s office leasing activity has been fast recovering lost grounds Q3 onwards. The sustained uptrend in demand during the fourth quarter as well as a testimony of occupiers’ belief in office as a destination for professional community building. Market indicators further suggest that this momentum will continue in the near future, and subsequent COVID waves will have only limited adverse impressions.”

Note: For more insights, please refer to our Office Market Beat Report.