Despite the second wave of COVID, office realty market remained resilient with a 5% growth in gross leasing q-o-q in Q1 2021

• Gross leasing shows 5% growth in Q1 2021, in comparison to Q4 2020 
• Mumbai, Delhi NCR and Bengaluru were the most active markets  
• Mumbai witnessed gross leasing volumes of 2.96 msf, a 34% q-o-q growth, as leasing was healthy in select sub-markets and was driven by major transaction closures. 
• Delhi NCR’s gross leasing was around 17% lower than the average leasing (2.5 msf) for the corresponding periods between 2017-19, excluding the exceptionally strong space take-up in Q1 2020.  
• For Bengaluru, the gross leasing volume stood at 2.39 msf during Q1 2021, a 27% decline q-o-q but still healthy considering the slowdown witnessed in 2020. 
• Enterprises open to flex workspaces rather than committing to long-term office take up.  
• A 57.8% increase in the number of flexi seats leased by enterprises in Q1 2021 compared to Q4 2020. A sharp jump indicating that occupiers are relying on flex space as a smart alternative in the current situation  

Cushman & Wakefield has released the India Office Report for Q1 (Jan – March 2021). The report highlights a 5% q-o-q increase in commercial leasing in Q1 2021 in comparison to Q4 2020. First quarter has traditionally been a slow one for the industry, but this marginal growth does reflect that the resilience of the office sector is intact, a year on from the pandemic. 2019 was a blockbuster year for commercial real estate, and interestingly, gross leasing in Q1 2021 while being 25% lower from Q1 2020, is just 5% lower from Q1 2019.  

The occupiers were cautiously but surely returning to the office at the beginning of the year but the new spike in COVID-19 cases across the country towards the end of the quarter and ensuing restrictions has once again impacted real estate decisions. As a result, the impact on the gross leasing numbers is visible across key cities in Q1 this year. Mumbai, Delhi NCR and Bengaluru were the most active markets. Despite the highest number of COVID-19 cases, Mumbai witnessed gross leasing volumes of 2.96 msf, a 34% q-o-q growth, as leasing was healthy in select sub-markets and was driven by major transaction closures. It needs mention here that the higher gross leasing was driven by 1.77 msf of term renewals, 1.04 msf of fresh leasing and nearly 0.14 msf of pre-leasing during the quarter. Delhi NCR recorded gross leasing around 17% below the average (2.5 msf) for the corresponding periods between 2017-19, excluding the exceptionally strong space take-up in Q1 2020. In Bengaluru office demand stood at 2.39 msf during Q1 2021, a 27% decline q-o-q but still healthy considering the slowdown witnessed in 2020. Term renewals constituted a 20.4% share of quarterly leasing in Q1. 

With no clear sign of a post-COVID world, enterprises are increasingly adopting a cautious approach and are choosing flex workspaces rather than committing to long-term office take up.  

A 57.8% increase in the number flex seats (leased by enterprise clients) was recorded in Q1 2021 compared to Q4 2020. A sharp jump indicates that occupiers are relying on managed space as a smart alternative in the current situation. 

Enterprise leasing of flexi seats in 2020: 

The net absorption across all key cities in Q1 2021 stood at 3.57 msf, which is 43% lower than Q4 2020.  In Mumbai the net absorption stood at 0.20 msf, a 20.4% decline compared to the previous quarter. With Mumbai having the highest number of COVID-19 cases at present, leasing activity in the city is expected to remain muted during the first half of 2021. Having said that, with the immunisation drive slowly picking up pace in the future, the momentum in the commercial real estate market is expected to return in the second half of 2021.  Net absorption in Bengaluru was recorded at 1.72 msf, a 7% decline q-o-q but a 37% drop on an annual basis. Delhi NCR recorded 0.43 msf of net absorption during the quarter, a 32% decline compared to Q4 2020. 

Office market in 2020: 

The completion activity witnessed a 14% decline q-o-q as PAN India new completions was recorded at 10.91 msf in Q1 2021. Having said that, on a y-o-y basis there was a 15% increase in completions as compared with Q1 2020.  

Commenting on Office Market report for Q1, 2021 Mr Anshul Jain, Managing Director – SE Asia & India, said, "Since Q4 closed on a positive note for commercial real estate leasing business, the market was hopeful of a gradual return to business as usual. And the immunisation drive carried out by the government added much-needed confidence. Unfortunately, the sudden spike in the number of COVID19 cases paused the momentum the market had picked up. Unless the government rolls out the vaccination drive for one and all, occupiers will continue to remain cautious and market activity is likely to remain muted till the beginning of the second half of 2021.”