The year 2020 proved to be a game-changer in the Indian office market, as the spread of Covid-19 changed the way companies function. Many corporate workers began to work from home, causing a sharp decline in the demand for office spaces. That led to the decline in office spaces as well as construction of new spaces. Majority of the construction halted. As a result, the rental growth in seven major metropolitan cities slowed down considerably.
However, the office market in Delhi-NCR remained active in 2021 despite the Covid-19 pandemic, with Gurugram witnessing a nearly two-fold jump in gross leasing to 4 million square feet, according to Colliers India. We also see small to medium business emerging post pandemic, a great prospect for micro-office market- like NH8 and Noida-Greater Noida expressway are likely to see better rental growth than the average city values in the medium to long term. Gross leasing of office space in Gurugram stood at 2.1 million square feet during 2020.
Noida saw a marginal increase in gross leasing of office space at 2.1 million square feet during the 2021 calendar year as against 1.9 million square feet in the previous year. In Delhi, the absorption of office space remained flat at 2,00,000 square feet. Delhi-NCR has a pipeline of around 5.1 million sq ft concentrated along Golf Course Extension Road, Noida Expressway.
According to Colliers India report, the Delhi NCR office market overall recorded a 50 per cent rise in gross leasing of office space to 6.3 million square feet in 2021 from 4.2 million square feet in the previous year. Technology companies accounted for a 40 per cent share in total leasing. Led by growing demand for managed spaces from enterprises and start-ups, demand for flexible workspaces grew three-fold and inched closer to one million square feet in 2021.
Legato health technologies a company that provides IT and business consultancy to US insurers has leased 50,000 sq ft of office space in Gurgaon. The space in Gurgaon has been taken at Brookfield Candor office park in Dhundera. In fact, Amazon Inc. is also in talks with real estate developer DLF to lease more than 6,00,000 sq ft of office space in its upcoming "Downtown Gurgaon". According to international property consultant Savills, large-sized deals of 1,00,000 sq ft or more have dominated leasing activity in NCR, constituting over 41% of the total office space demand in 2021. Delhi NCR is expected to clock approximately 8.1 million sq ft in 2022.
The bottom line is, the office market in India has started showing signs of recovery, with leasing activities that had slowed during 2020 and 2021 expected to pick up pace in the coming quarters. Employees are returning to offices as the third wave of Covid-19 weakens.
The IT sector is expected to remain among the key office space occupiers in 2022 and demand from other sectors such as BFSI and co-working is also likely to show some improvement. In addition, the improving job market is expected to create demand for office spaces. The year 2022 is expected to see strong supply and demand conditions to be led by cities like Hyderabad, Bengaluru and Delhi. As the overall market sentiment is improving and there are decent pre-commitments in the under-construction projects, developers are prioritizing project deliverables. We expect rents to be on a positive growth trajectory with healthy market fundamentals and low vacancies in key office districts.
Reference – JLL, Hindustan Times, Colliers Intl.