Office space leasing in India to grow by 22% in 2021: Savills India

14th March, 2021: Office space absorption across India’s six major cities is expected to touch 41.3 mn sqft in 2021 marking a growth of 22% from last year. Similar to 2020, Bengaluru is likely to take the lead with an estimated absorption of 14 mn sqft by year-end as confidence among corporate occupiers in the city continues to remain strong. Additionally, the availability of diverse talent pool and robust tech ecosystem puts the city ahead of others.  Meanwhile, Mumbai is likely to post highest Y-o-Y growth in leasing activity from 2.9 mn sqft in 2020 to 5.5mn sqft in 2021, according to Savills India’s recent report titled – India Market Watch Office 2020.

“We expect the office real estate market to improve in 2021 as it continues to attract interest from occupiers as well as investors, despite the disruption caused in 2020. Boosted by positive government reforms and improvement in economic activity, we are certain that office space absorption will pick up soon.  Several corporate occupiers have revived their expansion plans as more and more people start returning to offices and business starts to pick up” said Anurag Mathur, CEO, Savills India.

“2021 would be an interesting year for the office market. For cities like NCR and Mumbai, we expect it to be a year of recovery and regaining lost ground. Meanwhile, for tech cities like Bengaluru and Hyderabad, it will continue to be a year of expansion and growth,” Naveen Nandwani, Managing Director, Commercial Advisory and Transactions, Savills India.

Key Findings of the Report

• Bengaluru likely to witness a 20-30% increase in absorption. Incremental supply is also expected to post a Y-o-Y growth of 20-30%. Large-sized deals above 100,000 sq. ft. area are expected to form a major portion of the projected leasing in.
• Mumbai could see an increase of about 85-90% in office leasing as recovery is anticipated in the latter part of 2021. BFSI and technology occupiers are likely to drive the office demand. Savills India expects rentals to be largely stable across most micro-markets.
• The Delhi NCR market is likely to see an increase of about 20-25% in leasing in 2021 with most activity expected in the latter part of the year. Technology, BFSI, consulting, and manufacturing occupiers are likely to lead the demand. Delhi NCR has a strong pipeline of new supply of around 8.5 mn sqft of which over 65% is likely to be completed in Gurugram, and the remaining in Noida. As incremental supply is likely to outpace demand, vacancy levels are likely to inch northwards.
• The office market in Hyderabad is likely to see a 25-30% increase in absorption. in 2021.The IT sector is expected to continue to drive the leasing activity of the city. Rentals are likely to witness a marginal upward trend in 2021 as demand catches up with oversupply to a certain extent.
• Savills India forecasts a Y-o-Y growth of 5-10% in leasing activity in 2021 for the office market in Chennai. Rents in 2021 are likely to match or inch past the pre-COVID levels. Chennai is expected to witness approximately 5.6 mn sqft of new completions, which translates to a 54% higher supply as compared to 2020. Most of this upcoming supply is concentrated in Guindy and MPR.
• The office market in Pune could see a 30- 40% increase in absorption in 2021. Key locations like Baner & Belawadi in SBD West micro-market and Kharadi & Viman Nagar in SBD East micro-market are expected to continue to remain preferred corridors by occupiers. In terms of supply, the year is likely to see completions to the tune of 5.6 mn sqft, a 300% growth from 1.4 mn sqft in 2020.

“Though 2020 brought a pause to the growth momentum in office absorption, markets have steadily improved in the recent months. The pandemic-induced slowdown has created some clear distinction between cities. The decline was less severe in tech-driven cities, while those markets that are historically more diverse in terms of their demand base, the impact was much sharper. But the important thing is that most markets survived without a crash in prices or unmanageable vacancy levels. This is likely to bode well for investor confidence,” Arvind Nandan, Managing Director, Research and Consulting, Savills India.