New Delhi to see 7.8m sq ft of new office supply by end-2021

Office demand is expected to improve gradually this year.

In 4Q20, demand improved as companies made more active leasing decisions as compared to previous quarter. JLL says net absorption improved as new leases were recorded, primarily in Noida at 64%, followed by Gurgaon at 34%. One Noida building, completed in the quarter, was fully pre-committed by Paytm.

Gross leasing activity was much higher in the quarter; however, exits and renewals led to lower net absorption. There were a few instances of cost-saving relocations and occupier renegotiations. IT/ITeS, BFSI and co-working sectors were the primary contributors to gross leasing activity.

Three office buildings were completed, upping stock by 1.1%

Three office buildings were completed in Delhi NCR, adding 1.3 million sq ft to total stock, bringing the total to 125 million sq ft at end-4Q20. One building completed at Sohna Road in Gurgaon and two buildings in Noida with one completion each at Sector 62 and Noida-Greater Noida Expressway.

In new completions, 35% of the space was pre-committed. In Noida-Greater Noida Expressway, One Skymark – Tower D was fully pre-committed by Paytm. Vacancy declined in all submarkets except Gurgaon, where a few large exits were reported alongside the addition of one new building without any pre-commitments.

Rents remain stable with marginal decline in a few submarkets

Rentals remained stable with developers offering increased free-rent periods, decided on a case-by-case basis. Occupiers tried to reduce real estate costs by renegotiating with developers and reducing existing office space. In some submarkets, there was a marginal decline in rentals.

The reduction in office footprints and exits were led by travel companies, hospitality industry and small and mid-sized co-working players. DLF Cyber City Developers Limited (DCCDL), the rental arm of DLF Group, entered into an agreement to acquire Hines’ stake in One Horizon Centre, a commercial asset located at DLF 5, Gurgaon.

Outlook: Office demand expected to improve in 2021

Office demand is expected to improve gradually in 2021 as corporates return to the office space and work-from-home trends become clearer. Around 7.8 million sq ft of supply is expected to complete by end-2021. Occupiers are trying to reduce real estate cost via renegotiations, including the extend-and-blend of leases and pre-committing to upcoming supply.

Developers are focusing on timely delivery of under-construction projects and adopting structured approaches to launch new projects. Forward-looking occupiers will likely continue to undertake pre-commitments in under-construction buildings for the cost advantage. Managed office space is expected to gain in popularity over pure co-working spaces.