Out Of Office

Maxim Hopman/Unsplash

The COVID waves are ebbing and as our worst memories slowly go out of focus, we, as in workers and students, are migrating back to the metros to finish what was interrupted by the pandemic. 

While this certainly means that demand for offices is higher than before, commercial real estate vacancies are still quite high, thanks to a bit of an oversupply situation. 

What Do The Numbers Say?

Per JLL, till the end of September 2021, net office space absorption stood at about 15 million sq. ft. while new completions have reached ~35 million sq. ft. (almost 2020 levels). 

With limited interest registered in this newly added supply across major markets like Bengaluru, Mumbai, Hyderabad and Delhi NCR, overall vacancy levels increased to 16.4% by the end of Q3, FY21.

Just so you know, this is the second year in a row when demand and supply of offices aren't exactly seeing each other eye to eye. In 2020, suppressed net absorption levels of 25.6 million sq. ft. could not keep pace with new office completions of 36.3 million sq. ft. 

Are Things Improving?

Per Edelweiss data, Q2, FY21 witnessed a 48% increase in demand YoY and 21% QoQ, at 4.3 million sq. ft. However, demand in Jan-Sept, 2021, at 11.5 million sq. ft. is 14% lesser compared to last year, due to the pandemic’s adverse impact. 

Experts opine that with steady construction and deliveries in the office space segment, the demand-supply gap has widened currently. 

But with demand expected to see an uptick in the coming quarters, vacancies are likely to return to sub-15% levels by the end of 2022. 

Looking Ahead

Thankfully, supply of commercial real estate has reduced by 9% YoY, and by 3% QoQ, at 6.9 million sq. ft. in Q2, FY21. This needed correction happened due to developers holding back release of new supply to instead work on leasing their already vacant inventory. 

Also, many commercial projects under construction initially slated for completion during Q3, FY21 have been deferred to the next quarter or slightly beyond to let the demand supply gap level out further.