COVID-19 Has Led To The Office Space Leasing In Q1 Going Down As Companies Put Their Decisions On Hold

Leasing of commercial real estate has started witnessing pressure as transactions in advanced stages are being pushed to the backburner given that corporates are focussing on Business Continuity Planning measures and put many real estate decisions on hold.

For the quarter ended March, office space absorption across top 8 property markets has declined 30% sequentially to 16.75 million sq ft, showed a Cushman & Wakefield report. The gross leasing number, however, is 30% higher from a year ago period.

The net absorption during the quarter stood at 7.40 million sq ft, down 22.6% on a quarterly basis and 36.5% lower on a yearly basis as transaction slippages impacted the leasing momentum towards the end of the quarter, the report added.

Like new completions, Bengaluru leads the way in net absorption with share of 35.5%, followed by Delhi-NCR, Hyderabad and Mumbai with shares of 21.6%, 12.1% and 11.6%, respectively.

“The year started off with great momentum continuing form last quarter of 2019. But by the end of Q1, the headwinds from global economic slowdown on the back of COVID-19 pandemic saw activity tapering off. We are yet to understand the full impact of Covid19, on our business and worlds,” said Anshul Jain, MD – South East Asia and India, Cushman & Wakefield.

He expects the activity to pick up on back on business continuity plans, cost control and relocation decisions, later this year.

Delhi-NCR, Bengaluru and Mumbai were the most active markets with 25%, 22.3% and 18.5% share in gross leasing volumes during the quarter. However, apart from Pune, Bengaluru and Ahmedabad all other cities saw their leasing volumes drop on a sequential basis.

In terms of leasing activity, the Information Technology-Business Process Management (IT-BPM) sector continued to witness maximum share with 32% share in overall leasing. Captive centres accounted for a 15.8% share followed by flex workspaces with a 13.5% share. In times of cost savings around capex spends while ensuring a flexible work environment for employees, managed service operators are likely to be in demand going forward, Cushman & Wakefield said.

While projects with pre-commitments and operational dates of 2020 are likely to slip past their committed deadlines to the latter part of the year, supply deferments are likely as the impact on the raw material supply chains and time needed for remobilization of labour is expected to cascade into completion slippages. Construction activity is expected to slowly resume upon lifting of the lockdown.

Pre-commitment activity was just 2.36 million sq ft compared to 10.37 million sq ft in the previous quarter, indicative of a general uncertainty in business cycles impacting future growth decisions by CREs. Pune led with a 38% share, followed by Hyderabad with 28% share, Delhi NCR with 16% share and Bengaluru with 10% share.

Intense completion activity before the lockdown resulted in 10.8 million sq ft of supply being added in the quarter, which was a 10.2% on-quarter rise. However, on a yearly basis, new completions were down by 32.3%. Bengaluru led the way with a 41.7% share of new supply, followed by Mumbai and Delhi NCR with 20.7% and 20.0% share respectively.

(Source: Economic Times)