Southern cities remain most resilient; Bengaluru, Hyderabad demand see upside from prior pre-commitments

The southern cities accounted for 63% of the total gross absorption during the year. Bengaluru not only led leasing activity in the country, but also witnessed the least disruption to demand in 2020 from the pandemic.
The city witnessed gross absorption of about 11.2 million sq. feet, a drop of 25% from 2019 levels. Chennai and Hyderabad witnessed lower absorption of 30% and 37% respectively, from 2019 levels. Leasing activity in Bengaluru and Hyderabad was led by the completion of buildings that had prior pre-commitments.

"While the pandemic did lead to a temporary challenge, Southern cities weathered the storm and proved to be most resilient. Bengaluru, not only led the office absorption in India but due to pre-commitments and enquiries in from Q3, 2020 onwards is expected to bounce back in 2021", said Arpit Mehrotra, Managing Director, Office Services (South India) at Colliers India.

During the year, cities such as Bengaluru and Hyderabad continued to witness stable rentals and did not see a drop in quoted rentals by developers led by sustained queries for space in the second half of the year.

Bengaluru and Hyderabad have been witnessing pre-commitments and enquiries from Q3 2020, signaling a revival in demand for office space from occupiers.

“The commercial office market has started improving since Q3 2020, and we expect the market to recover post June 2021. We believe that demand for office space will be run by technology companies, especially for their global in-house centers. Suburban and peripheral office locations will continue to garner traction, and occupiers will look to adopt a hub and spoke model for ease of employees. While rentals have dropped in cities like Delhi-NCR and Mumbai, cities like Bengaluru, Hyderabad and Pune continue to be resilient,” says Siddhart Goel, Senior Director & Head of Research, Colliers India.

Colliers mentioned that the year 2020 witnessed commercial office gross absorption of about 34 million square feet across the top six cities in India, a fall of about 41% from 2019, which saw demand at an all-time high. The gross absorption during the year that was marked by the pandemic was at a six-year low. However, demand picked up during the second half of the year as occupiers gained confidence to finalize deals that were stalled during the year and start planning for returning to ‘business as normal scenario’. Gross absorption during the second half of the year rose 25% over the first half of 2020.