In its recent report, India’s premier real estate consultancy, Knight Frank observes that 10.8 million square feet (msf) of office space was transacted in Quarter 1 (Q1) 2022 (January – March). Bengaluru remained the foremost market with total leasing of 3.5 msf of office space, followed by NCR which recorded 2.3 msf of gross leasing in the first three months. New completion in Q1 2022 was recorded at 11.9 msf led by Pune that saw fresh supply of 3.6 msf followed by Bengaluru with 2.5 msf of new office spaces. Rents have stabilized or grown in sequential terms during Q1 2022. Even in YoY terms, rents have stayed stable or grown in five of the eight markets. Bengaluru saw the most growth with a YoY rise in rental values of 4% in Q1 2022.
DEMAND STRENGTHENS IN Q1 2022; RECORDS GROWTH OF 25% YOY
Demand for office made a swift return despite about 1 month being disrupted by the third wave of COVID that impacted decisions in the early part of the quarter. With 10.8 msf of new leasing, office space recorded a YoY rise of 25% over the same time last year. Bengaluru maintained its top position leasing 3.5 msf of office space which was a rise of 5% YoY. NCR recorded a rise of 37% YoY to become the second-best performing leasing market with gross leasing volume of 2.3 msf. Hyderabad recorded an impressive 72% YoY growth with total leasing of 1.6 msf. Chennai recorded a rise of 124% YoY with leasing of 1 msf recorded in Q1 2022. Ahmedabad, also recorded a substantial 165% YoY rise in gross leasing in Q1 2022, albeit on a low base. Mumbai was the only market that saw a decline of 24% in leasing activities with 900,000 square feet (sq ft) being leased in the first quarter of 2022.
SUPPLY RECORDS GROWTH OF 13% YOY
As various state governments initiated the withdrawal of COVID -19 protocols and companies start to return to office, enquiries for office spaces have increased significantly over the last few quarters. This has led to a rise in office space supply. Q1 2022 saw the addition of 11.9 msf of new office space across top eight cities, registering a rise of 13% YoY over the same quarter last year. Pune led all markets with new supply additions of 3.6 msf in Q1 2022 a rise of 107% YoY, while Bengaluru recorded new completions of 2.5 msf (-25% YoY) which was the second highest volume addition for the quarter.
CO-WORKING SPACE RISE IN SHARE OF SPACE TAKE UP
Co-Working and managed office spaces saw a rise in the share of office space absorption making up 21% of total leasing volume in Q1 2022 as against 11% in Q1 2021. In absolute terms, managed office spaces took up 2.3 msf of office space in Q1 2022 against 0.9 msf in Q1 2021 recording a rise of 151% YoY. Information Technology segment saw a decline in its share of space take up in the first quarter of 2021, making up about 27% of total leasing versus 32% in Q1 2021. The IT sector’s ‘back to office’ transition was hampered by the OMICRON variant and caused some IT corporates to postpone their leasing decisions.
RENTAL LEVELS INCREASE OR STAY STABLE IN 5 OF 8 MARKETS
Rental values continued to recover with 5 of the 8 markets seeing an increase or stability in rental values compared to a year ago. Bengaluru registered the highest growth at 4% YoY in Q1 2022. Despite the growth in transactions, rental values in NCR remained subdued recording a decline of -1% YoY. Mumbai, while it remains to be the most expensive, registered a decline of -3% YoY.
Shishir Baijal, Chairman and Managing Director, Knight Frank India says, “The country has returned to normality backed by strong vaccination drive that has given India Inc confidence. We expect the office segment to return to its pre-COVID momentum in the next few quarters as the Indian economy continues to strengthen. The significant increase in hiring and the pent-up demand of the past 8 quarters, are expected to drive market volumes in the remainder of the year.”
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