Indian office space leasing up by 89 per cent in third quarter

V Nagarajan

Top six cities of India have absorbed about 10.3 million squares feet of office space in third quarter of 2021, the highest volume recorded since first quarter of 2020.

After a devastating pandemic second wave in the second quarter, the overall absorption numbers rose by 89 per cent QoQ as occupiers planned for a gradual re-entry and closed deals that were on-hold, leveraging tenant favourable market dynamics.

IT sector driven cities like Hyderabad, Bengaluru and Pune accounted for 62 per cent of gross absorption in Q3. With the increased number of fully vaccinated employees returning to their workplaces coupled with fewer restrictions on mobility, the office market is showing strong signs of revival, according to a survey by Colliers India.

After an average performance in Q2 2021, Hyderabad has emerged as one of the resilient cities in terms of demand supply dynamics. For the first time, Hyderabad had the maximum share in leasing volume at 2.5 million sq ft surpassing Bengaluru, as occupiers focussed on large block deals and even leasing entire buildings. BFSI and flexible workplace sectors had the maximum share in leasing volume accounting for 66% of the total demand in Hyderabad. Rai Durg saw the maximum leasing traction accounting for 53% of the demand, while Hitec City contributed 40%. On a YTD basis, Bengaluru continues to be the market leader.

Leasing share by flexible workspace operators also rose in Q3 owing to high demand from occupiers looking for managed spaces and short-term leases to tide over uncertain times. Share of flexible workspaces in leasing increased to 26% in Q3. Leading flexible workspace operators focused on signing large block deals exceeding 100,000 sq ft in almost all major cities seeing increased interest from corporates for managed spaces. Pune accounted for the highest share in flexible workspace, followed by Hyderabad.

Highest supply since Q2 2020: The quarter saw the highest supply since Q2 2020 at 10.8 million sq feet in Q3 2021 with Hyderabad and Pune contributing the maximum share at 29 per cent and 25 per cent respectively. The second wave did not have a major impact on the construction activity. Developers continued to focus on leasing existing stock and received occupation certificates for buildings with pre-commitments.

According to commercial real estate experts who spoke during CII-JLL realty conclave held recently, the year-end net absorption is likely to be around 25-26 million sqft. The market presents a huge opportunity for developers of commercial space with limited suppliers in the market.  In the absence of speculative supplies, 15% rental growth is anticipated.  If global IT giants’ requirements alone are put together, a minimum requirement of 1-2 million sqft is assured every year for developers in commercial real estate.  

A developer is keen to tie up for development of affordable housing.  Has the government considerably liberalised rules and is it a viable proposition to go for development of affordable housing projects.  Please clarify.  Anil Talwar, Sharjah.

Yes.  The government has eased norms for development of affordable housing.  The carpet area of residential unit is up from 30 sqm to 60 sqm for big cities and from 60 sqm to 90 sqm where the housing project is located in any other place. Also, it has provided the cap for each residential unit in the project at Rs. 45 lakh.

It will be applicable for project approved on or after 01.09.2019. The quantum of tax relief remains the same, viz., 100% of the profits of the housing project, provided the project is completed within five years from the date of approval by the competent authority.

 I invested in residential and commercial properties in Pune and Delhi.  Will the Model Act introduced by the government be of any help for investors?  M C Sudeep, Dubai.

The Model Act recently introduced will apply to all premises used for residential, commercial and educational purposes.  

It requires the landlord and tenant to sign a written agreement that specifies the rent, period of tenancy, and other related terms.  

Security deposit is capped at two months’ rent for residential premises and six months’ rent for non-residential premises. As per the Act, a written agreement must be signed between the landlord and the tenant.  

The agreement must specify: (i) the rent payable, (ii) the time period for the tenancy, (iii) terms and period for revision of rent (iv) the security deposit to be paid in advance (v) reasonable causes for entry of landlord into the premises and (vi) responsibilities to maintain premises.