New Delhi office space absorption down 68% in Q2

Gurgaon and Noida contributed 90% of the net absorption in 2Q20.

According to JLL, in light of the COVID-19 pandemic, demand softened with Delhi NCR office market experiencing a 68% decline in net absorption q-o-q in 2Q20. Gurgaon and Noida contributed 90% of the net absorption in 2Q20. Many occupiers have been considering renewals and delaying their expansion plans to save capital expenditure.

In the medium term, the office market is expected to be resilient as there is low vacancy in quality office buildings in prime business districts. Recently, Microsoft announced that it will open its next campus in Greater Noida.

Here's more from JLL:

Office supply of 1.9 million sq ft added to stock in 2Q20

Around 1.9 million sq ft was added to the total office stock in 1Q20. Vacancy increased as there were six office projects added with low pre-commitment; only 9% of the area completed was pre-committed. Four projects were completed in Gurgaon and one each in the Noida and CBD submarkets.

The projects that are in ready to fit-out stage or advance stages of construction are expected to meet the delivery timelines in 2H20. Albeit not at a full swing, construction activity has resumed and developers are focusing to complete their projects on time. However, some projects may get pushed back by 3-6 months due to shortage of labour and short-term liquidity concerns.

Rents remain stable across the Delhi NCR office market

Due to the completion of prime properties with higher rentals, the overall Delhi NCR office market saw positive rental growth. However, the effective rentals were stable across all the existing office buildings. Some of the developers have agreed on reductions in common area maintenance (CAM) charges for the lockdown period.

Office developers are ready to discuss early renewals in exchange for extended lock in periods to retain big occupiers. Occupier demand in the near term may be characterised by renewals as many cost sensitive occupiers will negotiate on lower accelerated rentals.

Outlook: Office market conditions expected to improve in 2H20

Leasing demand is likely to stay soft in the short term as tenants delay their decisions on leasing requirements. However, as the lockdown measures are eased, leasing activity is expected to strengthen in 2H20. There are early renewals under discussion following the ‘extend and blend’ concept. It reduces the rental escalation for the occupiers with an extended lock in period.

The long term outlook remains robust as there is less vacancy in Grade A buildings in prime office corridors. Moreover, forward-looking occupiers should continue to undertake pre-commitments in under construction buildings to benefit from lower costs. Few occupier categories such as healthcare, insurance, web-based education companies are expected to generate additional demand.

Note: Delhi Office refers to Delhi NCR's overall Grade A office market.