Despite the slowdown in commercial real estate activity in the wake of the COVID-19 times, the office market has not seen any major fluctuations overall across the country. Companies have increased their focus on having healthier workspaces and are more intent on having amenities that allow larger teams to function cohesively across different locations. While hybrid work is being supported by many, the importance and viability of office spaces has not been undermined in the least. Probably the slowest period for transactions in the office market had been the first half of 2021. Even in the same period, the transactions almost were equal to the preceding period. So, how is the market now, considering we are almost at the end of 2022?
The second half of 2021 ended on a rather favorable note for the Indian office market indicated by the transaction volumes that scored a post pandemic high , with the promise of a sustained recovery. It is interesting to note that India’s GDP at around the same time was lower than the expected pace of 8.7% for FY 2022. Even if H1 2021 volumes were lowest among those of the recent years, they still managed to match volumes of the preceding period. The Omicron period of early 2022 was probably the milestone after which corporate India started an earnest return to office. This improved physical occupancy levels, and combined with a revival in hiring, it also served to increase transaction activity across markets.
A total of 25.3 million square feet of office space was in transactions in the first half of 2022, as compared to 12.3 million square feet during the same period in 2021. Yes, the growth seems massive as the base period was affected by the pandemic. But even when compared to 2021 H2, the transaction volumes of H1 2022 are merely 2% lower. Had the Omicron variant not been a factor, the H1 2022 transaction volumes could have been the post pandemic high.
All the markets across India have grown substantially across India, but even then, 5 out of the eight prominent markets have seen significant growth even as per that standard. Bengaluru stays in the lead with 7.7 million square feet of transactions that account for 31% of the total area transacted in H1 2022.
Service sector companies were the most active in gaining new office space, followed by the IT sector. The IT sector’s share of 31% in the transactions in H1 2021 fell by a few points to 27% in H1 2022. But it is expected that the IT sector being primarily office bound in its operations will soon see the numbers bouncing back in the very near future. While direct leasing from It sector reduced, co-working and managed office sectors’ transactions picked up pace to 17% of total transactions in terms of space, in H1 2022 compared to 10% in H1 2021.
Rental levels were rather stable, or grew slightly across all markets in H1 2022, occurring again after H1 2019. At 13 and 8% YoY respectively, Bengaluru and Pune markets grew the most during H1 2022.
Bengaluru and Hyderabad contributed the most as per the total completions in H1 2022, accounting for almost 46% of the total completions. New completions in H1 2022 saw a 61% growth YoY.
With all these numbers out in the fore, it is clear that the pandemic is not one of the concerns that might be pulling back on the market trends. However concerns on economic growth and its impact on corporate growth could affect how occupiers decide for the second half of 2022.