Report, Real Estate News, ET RealEstate
NEW DELHI: The office market in India reached its peak in 2019. Class A net absorption of 46 million square feet and new completions exceeded 50 million square feet. In 2020, net office space absorption was 25.5 million square feet, a 45 percent decrease, while new leases hit 36.4 million square feet, a 27 percent decrease according to a recent report from JLL India
Nearly 38 million square feet of new completions are expected in 2021, while net absorption is expected to be 30 million square feet, the report added.
The Covid-19 pandemic and subsequent containment measures presented the office area with unprecedented challenges in the second quarter of 2020. Corporate users have been forced to take over from home and rethink their workplace strategies. Important real estate decisions were delayed and hampered demand.
In addition, a cautious approach to capital spending has been taken. These changes are likely to shape the future of the office market in India. A sustainable organization will be characterized by a hybrid work model that includes home offices, flexible workspaces, satellite offices and headquarters.
In addition, companies are rethinking their office locations and examining whether it is possible to build a network of offices that is spread across different locations.
The vacancy rate in class A office space in India has been below the 15% mark since 2017. Even during a year ravaged by pandemics, the vacancy rate rose slightly and is expected to remain tied to the range in 2021. In view of the vacancy rate tied to the range, office rents remained stable in the seven most important office markets in India in 2020.
Flexible workspaces
The Indian flex space market grew between 2017 and 2019 with a CAGR of around 50% and accounted for up to 14% of leasing activities in 2019. That growth was stopped by the 2020 pandemic.
The current market penetration of Flex Spaces in all office space is around 3%. Deeper penetration of flex spaces is expected in India in 2021 as corporate users continue to turn away from long-term capital-intensive commitments.
JLL India expects the Flex Space market to reach nearly 39 million square feet in 2021.
Investment opportunity
Institutional investments in Indian real estate saw a significant short-term decline in the first three quarters of 2020. Most investors remained cautious as asset pricing and earnings stability were challenging, resulting in a sharp drop in the number of transactions.
However, large portfolio deals in the final quarter resulted in total investments of $ 5 billion in 2020, which was slightly lower year-on-year.
Investors are likely to focus on assets with higher yields and lower rental growth to ensure income stability. According to JLL India, there are Rs 55 billion investment opportunities in office modernization in India.
The listing of new REITs is expected to give institutional investors the opportunity to build up asset portfolios before going public or to invest together with existing platforms. The provision of the Union budget 2021-22, which allows debt to be borrowed from foreign portfolio investors at low cost, will lead to more acquisitions of assets by REITs. Office wealth is expected
the preferred option due to stable rental yields and earnings visibility.