Office Leasing volume across the top six cities was noted at 5.5 million sq ft in Q2 2021, an 18% increase on a QoQ basis as some of the occupiers expanded their office footprints leveraging the current weakness in leasing fundamentals. Occupiers that have leases approaching expiration are undertaking portfolio optimization efforts by relocating to cheaper and/or smaller offices to control/reduce their real estate costs. As vaccination drive gained momentum and a fall in cases was registered towards the end of the second quarter, some offices gradually re-opened but with limited capacity and strict safety protocols. We are expecting full occupancy in offices by early September in case another wave is avoided.
Technology sector accounted for almost 34% of the total demand followed by the Engineering and Manufacturing sector which accounted for 22% of the leasing volume in Q2 2021. The average deal size by technology sector occupiers was about 41,000 sq feet in Q2 2021, a 11% increase compared to the last quarter. We expect demand from IT-BPM sector to remain resilient moving into the next quarter, as India retains its position as a talent hub and digital innovation center. Flexible workspaces, on the other hand, accounted for only 13% of the leasing in Q2 2021, up from 5% share in Q1 2021. Overall, flexible workspace operators continued to be cautious on expansion and instead focused on opening centers only with established demand from enterprises.
About 5.0 million sq ft of new supply infusion was noted across the top six cities in Q2 2021, a 27.8 % decline on QoQ basis. Bengaluru accounted for 80% of the share in new supply followed by Delhi NCR and Pune at 8% and 7% respectively. Developers remained cautious in bringing new supply online amid subdued demand conditions. We recommend that developers should not slow down their construction activity to prevent cost-overruns as the delivery timeline gets delayed and avert a situation of rising rents which can make business conditions unviable.
Q2 2021 – Gross Absorption and New Supply (Grade A Buildings only)
(Data in million square feet)
Employee productivity, health and wellness remain at the core of future workplace strategy. Despite the short-term challenges faced by the sector, pre-commitments remained largely intact indicating that tenants continue to prefer newly developed buildings with better wellness standards. The upcoming high-end product and recently developed buildings will lead the recovery in the coming quarters.
Companies are preferring a blend of in-person and remote work rather than a fully remote model as more companies realize the importance of collaboration and teamwork. The Human element in offices is responsible for creating an Organisation’s culture which for the time being has been replaced by wellbeing, wherever possible. Firms are looking to sign short-term leases of about 1.5 to 2 years with flexible workspace operators to bring in flexibility of lease terms as they remain uncertain about long-term office leasing plans and re-assess their office space needs. Corporations are also looking to provide greater flexibility in terms of location of work to attract and retain talent. Occupiers are not only considering a hub and spoke model with smaller offices closer to residential areas but are also looking to expand in Tier 2 and 3 cities.
As multiple organizations opt for a hybrid work model and look to set up satellite offices allowing employees to work near home, some flexible workspace operators are providing its members the flexibility to access any location while others are entering into strategic partnerships with developers / landlords to cater to a more distributed workforce. Occupiers are deploying data driven workplace strategies to build a more responsive and agile strategy. Enterprises are also looking for fully furnished spaces and capital light deal structure to tide over the uncertain economic scenario brought on by the pandemic.
As occupiers continue to navigate the current scenario by accommodating a more distributed workforce, it becomes increasingly important for occupiers to create next-gen workplaces which are not only better equipped with technology but also create environments for better collaboration.Corporations are embracing activity-based working model which provides different zones for different types of work. This model helps in more effective space utilization and improves health and job satisfaction. Occupiers are looking to provide private pods and screen guards in the short term to help people return to the office. Building managers are also laying increased focus on automated systems like doors, faucets and MEP systems as people want to avoid touching surfaces as far as possible. Landlords and/or occupiers are looking at increasing the volume of fresh air intake and reducing the amount of recirculated air. As occupancy levels remain low, tenants are avoiding assigning personal desks to employees and bringing about some fundamental changes to workplace design and the way the space is used. Occupiers are giving employees the option to choose between different working configurations including desks, phone rooms, pods to work from and are also assigning private lockers to pack up their personal belongings at the end of the day.
We expect leasing momentum to bounce back in the next 2-3 quarters as employees get vaccinated and herd immunity is achieved and a gradual entry is planned by corporates by the end of the year. We recommend that tenants should leverage the current weakness in the market fundamentals to consolidate/expand their portfolios as the market is likely to be aggressive in the coming quarters as demand picks up. IT-BPM sector will continue to account for majority of the leasing volume as it remains largely unaffected by the pandemic and many IT-BPM firms look to hire new employees in the coming quarters. Attrition is low for now and hence working from any location works well. In person formal & informal socialising is a key ingredient for establishing a culture across institutions and we look forward to the return of normalcy in offices, schools and colleges.
By Bhupindra Singh, Managing Director, Regional Tenant Representation (India) & Office Services (North India), Colliers India
With an extensive experience of nearly 20 years, Bhupindra is a highly accomplished leader in the corporate real estate industry with core expertise in Occupier & Investor advisory services leading to cost optimization, expansions, portfolio consolidations and strategic account management for domestic and global Occupiers
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