Clocked net absorption at par with Q1 2020, which was the pre-COVID period
The city saw new supply at 4.7 mn sq ft in Q3 2020 and at 52%, it leads new completions
Bengaluru, NFAPost: The IT hub of India, Bengaluru witnessed a net absorption of 2.7 mn sq. ft. of office space in the Q3 2020, at par with Q1 2020 levels, according to JLL Research.
The city saw new supply of 4.7 mn sq. ft. as compared to almost no additions in the previous quarter. Bengaluru is likely to witness an addition of 1 mn sq ft of office space in the next quarter of which 70% is pre-committed.
SBD (Outer Ring Road, Banerghatta Road) accounted for 2/3rd share of the total net absorption at 1.8 mn sq ft during the quarter. Leasing continued to be driven by IT/ITeS, followed by manufacturing/industrial and e-commerce sectors.
| Q2 2020 mn mn sq ft | Q3 2020 mn mn sq ft | Growth (%) Q3 Over Q2 2020 | |
| Net absorption (mn sq ft) | 0.45 | 2.72 | 504% |
| New completion (mn sq ft) | 0.0 | 4.70 | – |
| Vacancy (%) | 5.3 | 6.5 | |
| Rent (INR / sq ft / month) | 76.1 | 76.9 | 1% |
Source: Real Estate Intelligence Service (REIS), 2020, JLL Research
JLL India Managing Director (Bengaluru) Rahul Arora within the city, the SBD submarket saw the highest addition of 3.2 mn sq ft, followed by peripheral markets of electrocnics city & whitefield.
“Outer Ring Road continues to be the most sought after location with over 60% share. It is imperative to note that prominent new supply were completely pre-committed in the previous quarters, coupled with the expected delays in construction, this could mean a supply crunch in near future,” said JLL India Managing Director (Bengaluru) Rahul Arora.
While most technology firms still continue to have mass WFH, JLL India Managing Director (Bengaluru) Rahul Arora said leasing momentum continues to strengthen with a number of new Request For Proposals (RFPs) that were released in the market in October-2020.
The city vacancy increased to 6.5% in Q3 2020 from 5.3% in the previous quarter due to the combined impact of higher net supply infusion into the market and significant exits by select large occupiers. Overall rents saw a marginal rise of 1% during the quarter on the back of higher occupancies.
Whitefield saw the highest jump of about 2.3% in rentals, followed by SBD and Whitefield at 1.2% each. At the same time, select developers are willing to discuss and offer extended rent-free periods, discounts on parking charges and common area maintenance charges on a case to case basis. However, there are no instances of discounts on headline rents or rental waivers.
City outlook positive
In an attempt to rationalize operational costs and achieve an impact on overall bottom line, more & more large occupiers are looking to restructure existing leases. This trend is expected to continue into 2021, however the silverlining is a number of MNCs (with smaller or no foot print in India ) carrying out a similar exercise have started expeloring oportunities to expand their foot print in Bangalore, India
Overall outlook for the city remains positive with continued investor interest and the recent land deal by Godrej Fund Management and active scouting of office assets by Blackstone and Brookfield corroborate this view.
India office absorption up 64% in Q3 vs Q2 2020
The country’s office market witnessed a net absorption of 5.4 million sq ft in Q3 2020, an increase of 64% versus Q2 2020. This is an encouraging trend especially after net absorption dipped almost at a similar rate in the second quarter.
The third quarter office rebound growth was led by Bengaluru and Hyderabad, which together accounted for nearly 80% of the net absorption in Q3 2020. The heightened activity in Bengaluru indicates a gradual resurgence in take up of spaces coupled with the translation of pent up demand from Q2 this year.
Net absorption1 gaining pace
| Q2 2020 (mn sq ft) | Q3 2020 (mn sq ft) | Growth (%) Q3 over Q2 2020 | |
| Bengaluru | 0.45 | 2.72 | 504% |
| Chennai | 0.10 | 0.21 | 110% |
| Delhi NCR | 0.50 | 0.20 | -60% |
| Hyderabad | 1.18 | 1.54 | 31% |
| Kolkata | Negligible | 0.02 | – |
| Mumbai | 0.45 | 0.28 | -38% |
| Pune | 0.64 | 0.46 | -28% |
| Total | 3.32 | 5.43 | 64% |
Source: Real Estate Intelligence Service (REIS), JLL Research
While the share of IT/ITeS occupiers in gross leasing[1] dipped to 43% in Q3 2020 from 61% in Q2 2020, e-commerce and manufacturing sectors gained significant shares during the third quarter forming 16% (negligible in Q2 2020) and 17% (5% in Q2 2020) respectively, owing to surging demand of e-commerce during COVID19.
Confidence in new completions
New completions during Q3 2020 increased by 59% quarter-on-quarter with 9.2 mn sq ft of new stock coming to market.
REIS, India, JLL Chief Economist and Head of Research Dr. Samantak Das, said with lockdown restrictions being relaxed in the third quarter in most of the markets under review, office projects in the final stages of construction or pending receipt of occupancy certificates came onboard.
“This resulted in an increase in the supply of office space, even surpassing 8.6 mn sq ft witnessed in Q1 2020,” said REIS, India, JLL Chief Economist and Head of Research Dr. Samantak Das.
New competition rebound
| Q2 2020 (mn sq ft) | Q3 2020 (mn sq ft) | Growth (%) – Q3 over Q2 2020 | |
| Bengaluru | 0.0 | 4.70 | – |
| Chennai | 0.0 | 0.0 | – |
| Delhi NCR | 1.94 | 0.22 | -89% |
| Hyderabad | 2.38 | 3.33 | 40% |
| Kolkata | 0.0 | 0.0 | – |
| Mumbai | 1.45 | 0.30 | -79% |
| Pune | 0.0 | 0.63 | – |
| Total | 5.77 | 9.18 | 59% |
Source: Real Estate Intelligence Service (REIS), JLL Research
In sync with net absorption, Bengaluru and Hyderabad led the increase in new completions accounting for 87% of the total new completions in Q3 2020. Notably, new completions in both these markets even went past the average new completion levels witnessed in the four quarters of 2019.
Vacancies go up in Grade A offices
Increased office space consolidation and optimisation strategies of corporate occupiers resulted in subdued net absorption levels, which could not keep pace with new completions.
This resulted in overall vacancy increasing from 13.1% in Q2 2020 to 13.5% in Q3 2020. Despite the rise in vacancy levels in southern markets, Bengaluru, Chennai and Pune continued to hover in single digits. This augurs well for a strong rebound in these markets when economic and business conditions improve in the coming quarters.
Vacancy in Grade A office
| As of Jun 30 2020 (%) | As of Sep 30 2020 (%) | |
| Bengaluru | 5.3% | 6.5% |
| Chennai | 7.9% | 7.6% |
| Delhi NCR | 28.0% | 27.9% |
| Hyderabad | 9.2% | 11.3% |
| Kolkata | 26.4% | 26.3% |
| Mumbai | 13.4% | 13.4% |
| Pune | 4.4% | 4.7% |
| Total | 13.1% | 13.5% |
Source: Real Estate Intelligence Service (REIS), JLL Research
Rentals across markets remain stable
Except for Bengaluru which witnessed a marginal increase in rents, office rents in Q3 2020 vs Q2 2020 remained stable across all markets under review.
With stable rental values and low vacancy levels, the office market in India continues to be landlord favourable. However, it is important to note that landlords across markets have become more flexible in providing increased rent free periods, reduced rental escalation and fully furnished deals to prominent occupiers which reduces their net outgo.
