“In Asia Pacific, total demand for office was 80 million sq ft, it came down to 30 msf in 2020 and in 2021 it came back to 60 msf. In 2022, we are expecting it to be 72 million sq ft and 2023 it will reach about 83 msf so it will reach the pre Covid level in 2023,” Yagnik said.
Despite the brief uncertainty during the second wave, the office market across the top 8 cities has fared well with a perceptible growth in the market activity, especially in the second half, according to perspective 2022 report by Cushman & Wakefield.
“In next 2-3 years India will maintain the 40% share. In India on an average 35 million sq ft is delivered. In 2021 it is 40 msf and in 2022 it is expected to be 46 msf. 25% of the new supply is already pre committed. We have an active 40 msf of demand and it will only grow up,” Yagnik said.
Barring a momentary lull in Q2, the office market has performed well in 2021 as companies started inking new deals. Meanwhile, exits have substantially declined across all markets and several pre-leases also became operational, especially in cities such as Bengaluru and Hyderabad.
Yagnik said that corporates have started focusing more on sustainability and employees health has become the priority.
“Most important thing which has gone into corporate is sustainability part of it. Entire conversation has changed to employees safety. Developers have also started focusing on this big time. Also, entire workplace design has changed. The density had gone down to 70 sq ft, now every corporate is talking about over 100 sq ft,” Yagnik said.
At about 50 million sq ft, gross leasing volume for 2021 is on par with 2020 and is a notch above the decadal average of 43 MSF.
“We estimate office demand to reach 57-60 MSF in 2022, registering a 15-20% growth on an annual basis. Leasing activity is likely to pick up pace as uncertainty erodes and the focus shifts towards sustainable business growth. Bengaluru, Mumbai, Delhi-NCR, and Hyderabad will continue to dominate the fresh demand in 2022,” Yagnik said.
The report mentions markets such as Noida and Navi Mumbai to perform well with growing interest from tech companies to set up larger centres. Pune and Chennai are also expected to bounce back strongly with growing occupier interest.
Tenants are actively discussing with developers while rebalancing/ optimizing the portfolio and are opting for early renewals wherever possible to negotiate better deals.
“We predict term renewals going up further in 2022 amidst the continued focus on CAPEX savings and alignment of medium to long-term portfolio strategies,” he said.
New completions at 40 MSF in 2021 are also on par with 2020, with Hyderabad, Bengaluru, and Delhi-NCR together recording nearly 2/3rds of the supply.
There were some short-term slippages as developers were focused more on projects with significant pre-commitments, and at the same time looking at the extent of demand recovery.
“We expect the supply situation to improve gradually in 2022 in line with improving market sentiments. Our estimates indicate the new supply across the top 8 cities could reach 45-46 MSF in 2022, a 13-15% growth on an annual basis, which would also be 30% higher than the decadal average,” Yagnik said.
Once again, Bengaluru and Hyderabad are likely to bring in 50% of the new space.
Cumulative office vacancy across the top 8 cities has increased by 350 bps since the pandemic. As such, physically vacant space has breached the 100 MSF mark for the first time in history.
Vacancy rates across top cities have increased by a minimum of 300 bps over the last 18 months.
“While some of this can be attributed to a slowdown in demand, the impact of space optimization can’t be ignored. Consolidation and rebalancing of portfolios among occupiers along with scheduled exits from some projects have also led to a rise in vacancy levels across cities,” the report said.
New supply has also brought new vacancies in the last two years. Nearly 45% of the new space that entered the market since April 2020 is now vacant. Meanwhile, another 8.0 MSF of vacant space has been added to the market as occupiers rightsized portfolios during this uncertainty.
“However, our estimates and demand analysis over the years suggest that the current vacancy levels of 17-18% are not a cause of concern and they are still on par (or even below) with some of the emerging markets in the region. Our analysis indicates that Pan India vacancy rates are likely to fluctuate at similar levels in 2022,” report said.
Delhi-NCR has registered the highest addition of vacant space primarily coming from non-core areas of Gurugram and Noida. Core locations in Gurugram have also witnessed an uptick in availability after years of ultra-low vacancy rates but a spurt in enquiries in H2 2021 suggests the market is set to tighten in 2022.
Hyderabad is another case in an example where vacancy in Madhapur is also around 10% but a good chunk of it is already under negotiations. In addition, nearly 60% of its (Madhapur) upcoming supply in 2022 is already pre-leased. Similarly, availability has increased in North Bengaluru but ORR on the other hand is extremely tight with vacancy rates below 5%. Other examples include Kharadi/Hadapsar in Pune, Pre-toll OMR, and Guindy in Chennai.