Commercial real estate: the curious case of vacant offices


Net office absorption was 5.85 MSF in the third quarter of 2021, growing 48% sequentially and growing 8% year-on-year. New deliveries amounted to 10.89 MSF, a decrease of 7% compared to Q2 2021 and an increase of 19% year-on-year. (Representative image)

Vacancy rates in commercial real estate (CRE) exceeded the 16% mark, as net absorptions did not keep pace with deliveries. This is the second time since 2017 that the post

levels have passed the 13-14% mark. According to JLL India, vacancy levels at the end of the July-September period of this calendar year reached 16.4%, the seventh consecutive quarter of increases. This is the highest level in the last 11 quarters. In the first quarter of 2019, vacancy levels stood at 13.3%, up from 12.8% in the first quarter of 2021, then Covid hit and levels have steadily increased since.

“New completions continued their streak of the previous two quarters (Q1 and Q2) with a supply inflow of 10.8 million square feet (MSF) during the third quarter of 2021.

“However, net absorption has not been able to keep pace with new deliveries as occupants still carefully assess their property portfolios and optimize costs to ensure business continuity, thus increasing vacancy levels by 60 basis points “said JLL India.

With limited pre-commitments in the newly added offer, particularly in Bengaluru, Mumbai, Hyderabad and Delhi, overall vacancy levels have increased. Despite the increase in overall vacancy levels, the markets in Chennai and Pune continued to hover in single digits. This bodes well for a strong rebound in these markets as trading conditions gradually improve over the next few quarters, he added.

Net office uptake was 5.85 MSF in the third quarter of 2021, growing 48% sequentially and growing 8% year-on-year. New deliveries amounted to 10.89 MSF, a decrease of 7% compared to Q2 2021 and an increase of 19% year-on-year.

JLL India chief economist Samantak Das told FE that in the second quarter of 2020, Covid held back the burgeoning office market, which was hit hardest as lockdown measures disrupted the way people are working. Office users continue to review their real estate portfolio and have adopted consolidation and optimization strategies throughout the year.

The relatively low net absorption levels of 25.6 MSF could not keep pace with the new completions of 36.3 MSF in 2020. As a result, the vacancy rate has increased continuously over the past three years. quarters of 2020.

As the unblocking economy and moderate cases of Covid-19 across the country, supported by an aggressive vaccination campaign, have helped the office market recover and led to an increase in rental activity during the quarter in the seven major markets, net absorption has not yet been maintained. pace with the new completions, Das said.

For the nine months ended September 2021, net absorption amounted to around MSF 15 while new completions almost touched 2020 levels. With limited pre-commitments in the newly added offer, particularly on Bengaluru, Mumbai, Hyderabad and Delhi markets NCR overall vacancy levels rose to 16.4% at the end of the third quarter of 2021.

“Due to a constant pipeline of assets coming online, the gap between supply and demand has momentarily widened. Nonetheless, with an expected pick-up in demand over the next few quarters, the vacancy rate is expected to return to levels below 15% by the end of 2022, ”Das said.

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