COVID-19 impact: Mumbai, Pune office space demand halved in 2020, says report

The demand for office spaces in Mumbai and Pune have witnessed the sharpest decline in 2020 as these western cities recorded a drop of 62% and 60%, respectively in their gross absorption this year, said property consultant Colliers International.
The decline was attributed to the longest and toughest lockdowns in the state of Maharashtra owing to the pandemic, which affected both demand and supply of commercial offices.

Firstly, as employees have operated from homes most of this year, their employers are using this period to assess their office needs and strategize for the future. Secondly, supply has also been relatively low and given that vacancy rates in Mumbai (13.5%) and Pune (9.5%) are low, there was not much vacant space to transact this year.

“The commercial office market in Mumbai is showing resilience, owners of commercial real estate have lowered their return expectations, which is a good sign. Investors should keep their return expectations reasonable for sustainable growth. Recovery to the pre-Covid levels will depend on stable government policies, at both state and central level and incentivising corporates to grow and hire,” said Sangram Tanwar, Managing Director, Office Services (Mumbai) at Colliers India.

Across top six cities of India, the year 2020 witnessed commercial office gross absorption of about 34 million sq ft, a 41% decline 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.

“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,” said Siddhart Goel, Senior Director & Head of Research, Colliers India.

According to him, while rentals have dropped in cities like Delhi-NCR and Mumbai, cities like Bengaluru, Hyderabad and Pune continue to be resilient

Bengaluru accounted for 33% of the gross absorption at about 11.2 million square feet. This was followed by Hyderabad and Delhi NCR with a share of 18% and 17% respectively. On the supply front, 2020 saw about 38.1 million sq. feet of supply infusion, a decline of only 2% from 2019, despite a nation-wide lockdown in Q2 2020 hampering construction schedules.