Home >News >India >Vacancy in high-quality office buildings rise, but rentals stable: report

NEW DELHI: If you invest in real estate investment trusts (REITs), you may not need to worry about the impact of the pandemic on high-quality office buildings in the short to medium term. While vacancies have been rising, rentals have remained stable because of limited supply of Grade A office space for the next few years.

Given that most firms continue to follow the work from home model, vacancies in office buildings rose 14.9% in the January-March 2021 quarter from 14% in the previous quarter, according to a JLL India report.

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While office building vacancy is at 15% at the pan-India level, in cities like Bengaluru, Chennai, and Pune this number is in single digits.

"...reduction of headline rents is not a popular phenomenon and rents are expected to remain range-bound in the short to medium term," the report said.

Landlords, however, have been flexible and accommodative to demands of occupiers. They have raised rent-free periods, reduced rental escalation, and offered fully furnished offices to close the deals.

The leasing momentum in the upcoming quarters will depend on the time taken to contain the second wave of covid-19. But a few developments are positive. “The increasing attendance in offices across the major markets before the second COVID-19 wave bears testimony to the confidence and commitment of corporates to get back to working from the office," according to the report.

The overall office market in the country witnessed a net absorption decrease of 33% sequentially in Q1 2021, with 5.53 million square feet leased during January-March 2021, according to the report.

On a year-on-year basis, net absorption in Q1 2021 stood at 64% of the levels witnessed in Q1 2020.

Net absorption includes fresh leasing in existing buildings and pre-commitments in the buildings that are getting operational in the quarter. It excludes exits or terminations, churns, renewals, and pre-commitments in future supply.

Bengaluru, Hyderabad, and Delhi NCR accounted for nearly 80% of the net absorption during the quarter. Moreover, Bengaluru and Delhi NCR were the two markets that witnessed an increase in net absorption when compared to Q4 2020.

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