COVID-19 impact: Office absorption falls to six-year low

“The unanticipated second wave hit hard in the second quarter leading to a temporary pause in expansion plans and dragging leasing activity to a six-year low,” said the Savills report, “The second quarter (April-June) saw a 65 percent quarter-on-quarter decline in leasing activity owing to lockdowns and the severity of infection.”

The good news, however, is developers still appear bullish on building office spaces, as 18 million square feet of new supply (4% increase YOY) hit the market in H1 2021. Despite the overall gloom, Bengaluru stood out as the top performer in leasing activity too, accounting for 4.1 million square feet (37%) of the 10.9 million square feet leased in January-June 2021.

In fact 2021 has so far seen Bengaluru absorb more office space than NCR (2 million) and Mumbai (1.4 million) combined. This isn’t unsurprising given that tech companies leased out nearly 51 percent of all office space in H1 2021, followed by BFSI (12.3%) and Engineering (10.1%). Bengaluru has also scored a maximum in terms of large-deal closures.

“Sizeable consolidations and expansions have contributed to the share of large deals (greater than 100,000 sq ft) in H1 2021, accounting for about 43.2 percent of the overall pie,” said the report, “Bengaluru witnessed the highest share of large deals at 51 percent, followed by NCR and Hyderabad.”

Whether or not the office market will bounce back in July-December 2021 remains the million-dollar question. Savills India’s outlook remains admittedly short of cautiously optimistic.

“Contrary to the upbeat sentiment in the early weeks of 2021, the turn of events in March and the rest of H1 has created an atmosphere of uncertainty,” the report said, detailing how the non-existence of a broad consensus on the possibility or timing of a hypothetical COVID third wave only added to the lack of sentiment.

However, the possibility of a pick-up in vaccination, Savills reported, could be the one light at the end of the tunnel: “Businesses are expected to recover on the strength of advancing vaccinations in the months ahead.”