Hyderabad: Hyderabad continued its momentum in office space absorption. The city led the pack with the highest net absorption in the country in Q4 2020, despite Covid times, contributing to 34 percent of the overall country’s office space leasing. India’s office market continues to recover witnessing a net absorption of 8.27 million sq ft, an increase of 52 percent in Q4 2020 (October-December) when compared to Q3 2020.
Of the 8.27 million sq ft, Hyderabad contributed 2.83 million sq ft followed by Bengaluru at 1.37 million sq ft, according to the latest JLL Research. Hyderabad witnessed overall leasing of 6.47 million square feet for the year 2020, of the total 25.2 million sq ft recorded across the top seven cities during the year. Bengaluru led the charts with 7.25 million sq ft.
Many occupiers are utilizing the current situation to get attractive deals from landlords. While IT/ITeS continue to form a majority proportion, office leasing is driven by increased demand from sectors such as e-commerce, healthcare, and FMCG.
“The year 2019 saw historic highs with net absorption crossing 46 mn sq ft. In 2020, net absorption dipped by 44 percent when compared to 2019. However, a comparison to the average annual net absorption levels between 2016 and 2018 elucidates a more realistic and thus resilient nature of the Indian office market,” says Ramesh Nair, CEO and country head, JLL India.
“Led by the southern markets of Hyderabad, Chennai, and Bengaluru, net absorption levels in 2020 reached 81 percent of what was observed between 2016 and 2018. Notably, net absorption in Hyderabad crossed the average annual levels witnessed during that same time frame,” he added. According to Savills India, Hyderabad remained one of the country’s top markets in terms of office leasing along with Bengaluru in 2020. Hyderabad showed resilience and growth both in terms of new office completions as well as maintaining steady rental values, quarter-on-quarter.
In a major sign of continued recovery, new office completions during the fourth quarter were recorded at 12.78 million sq ft., an increase of 39 percent when compared to Q3 2020. “The southern markets of Hyderabad, Chennai, and Bengaluru accounted for a major chunk (71 percent) of the total new completions in Q4 2020.
On an annual basis, new completions across the top seven cities dipped by 30 percent to about 36.34 million sq ft in 2020 as compared to 51.62 million sq ft in 2019. This being said, it is important to point out that new completions surpassed the average annual levels of about 34million sq ft witnessed during 2016-18,” added Dr. Samantak Das, chief economist at JLL. “The year 2021 is expected to witness close to 38-40 million sq ft of new completions, while net absorption is likely to hover around 32-35 million sq ft. This will be at par with the annual net absorption levels seen during 2016-2018,” he added.
Vacancy & rentals
Overall office space vacancy increased from 13.5 percent in Q3 2020 to 14 percent in Q4 2020. Office rents in 2020 remained stable across the major office markets in India. Rents are expected to remain stable in the short to medium term.
Landlords across markets have become more flexible in providing increased rent-free periods, reduced rental escalation, and fully-furnished deals to occupiers which reduces their net effective rental outgo. Tenant expectations in 2021 for quality spaces are expected to increase which will lead to a trajectory of graded office space developments.