With Increase in Flex Leasing Post-Pandemic, Office Net Absorption Totals Almost 12 Million Square Feet in 2022 First Quarter: Jones Lang LaSalle

At the conclusion of the first quarter of 2022 (January-March), the total office net absorption across seven cities was 11.55 million square feet. According to a Jones Lang LaSalle report released in its Office Market Update-Q1, 2022, office net absorption increased by a substantial 113 percent year over year, demonstrating the market's current strength. Due to the persisting uncertainty around the Covid-19 epidemic, net absorption was identical to the previous quarter.

Net absorption exceeded market traction, owing to pre-commitments in new completions that became operational this quarter. This demonstrates that occupier trust in earlier space transactions stays strong even as on-ground activity accelerates. Additionally, due to transaction slippages, gross leasing was lower than net absorption during the quarter.

In terms of market activity, the technology sector continues to be the largest occupier category. In Q1 2022, the flex sector leased 2.2 million square feet of space, the most since the epidemic began. Additionally, this represents more than half of the total yearly space leased by this sector in 2020 and 2021. As a consequence, the flex segment's share of total quarterly leasing was 21%. While the technology sector continued to dominate, its share of quarterly leasing activity remained at 25%, the manufacturing/industrial segment, with a 17% share of quarterly leasing activity, continues to gain pace as a result of aggressive policy initiatives. Consulting's lease share increased to double digits at 13%, while BFSI had a 10% stake.

"The Gross Leasing Volume (GLV) for the first quarter of 2022 was 10.5 million square feet, the second-highest level in the previous eight quarters. While the Y-o-Y comparison resulted in a 40% rise in GLV, the Q-o-Q comparison resulted in a 29% decrease. This may be ascribed to the fact that the majority of global corporations are awaiting budgetary clearances in the first quarter, which led in several deals failing to close on time. It is critical to note that pre-leasing contracts have remained intact, and bigger corporates have downsized very little or not at all throughout the quarter, showing a change in occupier mood and more business certainty as the epidemic is contained. Additionally, occupiers leased approximately 24,200 seats in the flex sector, which has gained popularity as a result of the shift in occupier portfolio strategy toward flexibility and on-demand space," said Rahul Arora, JLL's Head of Office Leasing Advisory in India.

The major cities of Delhi (27%), Mumbai (18%), Pune (16%), and Bengaluru (15%) together accounted for more over three-quarters of the GLV reported in Q1 2022.

Hyderabad had the greatest net absorption rate among the top seven cities, followed by Pune: both exceeded Bengaluru's net absorption rate in Q1. Additionally, Chennai, Hyderabad, and Pune saw an increase in net absorption as compared to the previous quarter. Hyderabad and Pune benefited significantly from new completions in Q1 that began leasing with good pre-lease levels.

"By 2022, we anticipate Grade A supply of 50-52 million square feet across the top seven locations, with net absorption of roughly 36-38 million square feet, a 35-40 percent year-on-year increase. Pre-commitment for the 12-month anticipated supply is now at 22%. When we look at superior grade supply (institutional and top developers), the pre-commitment rate jumps to 35%, indicating large occupiers' flight to quality assets and their long-term trust in India and offices staying essential to their workplace strategy." Dr. Samantak Das is the Chief Economist and Head of Research and REIS for JLL's India operations.

Q1 2022 had the biggest quarterly supply additions ever for the top seven cities combined, totaling 20.21 million square feet. Hyderabad (23.6 percent), Pune (23.8 percent), and Bengaluru (22.9 percent) led the office market in terms of new completions in the quarter, accounting for about 70% of total supply increase. Almost 39% of the supply expected to come online in Q1 from these three locations was already committed.

With occupiers returning to the market with their real estate plans, active demand in the top seven cities is now between 36 and 39 million square feet, approaching pre-Covid levels. This current demand reflects all significant ongoing space needs and transactions in advanced phases of negotiation and completion.

Given active demand and pre-commitment rates in comparison to impending supply, it is expected that demand-supply dynamics will find a balance that permits predicted vacancy to stay within the 15-16% range for the next 12 months as well.

With governments loosening office occupancy standards in key cities, the return to work has begun in earnest. While technology businesses are gradually reintroducing employees to the workplace, a hybrid model with time divided between offices, residences, and flex choices is likely to be applied across organisations on an individual basis and will not be a one-size-fits-all solution.