Office leasing activity across India's three tier-one cities witnessed a drop due to the impact of Covid-19, according to the latest Knight Frank Asia Pacific market bulletin released on Friday.
The lockdown has led to postponement of decisions from corporates across the spectrum due to a complete standstill of activities. The supply of new office too will be limited and delayed further, hampering leasing activities.
However, given that current vacancy in the market is between five to seven per cent, rents are expected to remain stable.
Also as India looks forward to relaxing the lockdown with norms of social distancing, Knight Frank said it does not expect vacancy levels to go up as existing compes will have to maintain their current portfolio to incorporate new public distancing norms.
"The situation is extremely dynamic and hence it would be challenging to provide a forecast for the year," said Shishir Baijal, Chairman and Managing Director of Knight Frank India.
Given the present situation, the lockdown in India coupled with the challenges of a global recession is likely to dent prospects for the Mumbai Metropolitan Region (MMR) office market.
"We should witness a drop in transaction activity in 2020, down from its historic highs in 2019, while also seeing supply limiting construction delays. All these will make rent growth elusive," said Baijal.
In 2019, Bengaluru's office market witnessed its highest gross take-up in a decade and the strong leasing momentum continued into Q1 20.
However, since the Covid outbreak, corporate occupiers have been postponing leasing deals which will impact the leasing momentum; challenges remain in short to mid-term. But the weaker currency, market undersupply and need for captive spaces will help revive take-up in the next four to six months.
In 2019, office rents in the National Capital Region of Delhi rose by four per cent, driven by growth in co-working sector. Despite the record leasing activity last year, Knight Frank expects demand for grade A office space to soften.
On the supply side, the lockdown has halted construction activities which will delay new supply. However, key micro markets within Gurugram and Noida will be less impacted by the new supply and will continue to command premium.
The MMR recorded historic growth in office market transactions in 2019 and the strong leasing momentum was maintained till Q1 20. However, given the severity of current pandemic in the MMR region and possible extension of lockdown in the city, demand for office market continues to remain impacted.
( With inputs from ANI )