H1 2021

SPOTLIGHT Market Watch Savills Research Office Market Watch - Office – H1 2021 India Market Watch - Office – H1 2021

Chart 1: GDP Growth (annual % change) 10 8 6 4 2 0 -2 -4 -6 -8 -10 2018 2019 2020 2021 2022 2023

World United States China Euro Area Japan India*

Source IMF World Economic Outlook * The statistics for India are for Financial Year, while for the rest of the countries, its for Calender Year.

Chart 2: COVID impact on Sectoral GDP (%)

14.5

INDIAN 6.9 6.5 6.7 5.4 3.5 3.0 4.5 3.1 1.7

-1.5 ECONOMY 2021 -2.3 -5.0 -7.2 -7.9 UNION BUDGET 2021-22 & -9.1 POLICY This section contains a narration of the Monetary Policy & RBI OUT OF RECESSION, The central government’s annual budget, presented -16.1 socio-economic scenario of India during BUT… before the second wave, had six key elements The Monetary Policy Committee (MPC) of the January to June 2021 period. It has a direct contributed by keeping India witnessed a protracted wave of pandemic in impacting real estate, as shown in the Annexure. bearing on all businesses and hence on real the benchmark lending rate constant at 4% 2020, which peaked on 17th September. A technical Notable among these was the PLI scheme of estate. during this period. The RBI also approved a recession occurred, as two consecutive quarters approximately INR 2 lakh crores, which aims to transfer of INR 99,122 crores as surplus to the A systematic, sequential and detailed reporting reported negative GDP growth. However, the new significantly boost manufacturing and allied government. -36.0 on all events during this period is presented in year started with hope, as vaccination was rolled out sectors. Further, there was push for affordable 12 unique #SavillsRoundUp, which we publish in India on 16th January 2021, beginning with housing, through focus on divestments, stressed COVID Specific Support asset resolution and tax holiday extensions. While on fortnightly basis. frontline services personnel. Soon, the country was As measures for COVID specific support, the these announcements were made before the second -49.5 -48.1 out of recession with a small but noteworthy 0.4% government announced 100% guarantee cover Please refer to the below link and follow wave, some others on policy and fiscal fronts came GDP growth for the Oct-Dec 2020 quarter (Q3 of FY for loans of up to INR 2 crores for hospitals and #SavillsRoundUp on our social media handles later. Agriculture Manufacturing Construction Trade,Hotels Financial, Real 2020-21). It was followed by 1.6% growth in Q4 of nursing homes, for setting up oxygen Estate to know about the events chronologically and FY 2020-21. This created a belief that India had In a virtual follow-up of the three Atma Nirbhar generation plants. Also, COVID treatment in real time. overcome the virus through a single wave, whereas Bharat schemes of 2020, the Finance Minister items have been exempted from IGST till Apr-Jun 20 Jul-Sep 20 Oct-Dec 20 Jan-Mar 21 most large economies around the world had suffered announced a package scheme of INR 6.29 lakh August 2021. two or more waves. In early March, vaccination was crores, including help for the beleaguered travel and Source MoSPI, Government of India opened to common public, amid rising confidence. allied sectors. These are among those key sectors REST OF 2021 In a strong reversal though, by the end of March, a which continue in the negative growth zone Contrary to the upbeat sentiment in the early second wave began and rose to enormous (chart-2). weeks of 2021, the turn of events in March and proportions in a matter of weeks. Lockdowns Another key event of the period was the central the rest of H1 has created an atmosphere of India’s GST collections remained at returned as India’s daily infection rate peaked at cabinet’s approval to Model Tenancy Act. It is a uncertainty. A third wave of the pandemic has 4.14 lakh in the first week of May. This was almost watershed development which paves the way for neither been ruled out nor clearly projected at over INR 1 lakh crore for 8 consecutive 4.25 times the single-day peak of the first wave. rental housing creation in India. Hopefully, it will this stage. Various international and domestic agencies have repeatedly changed India’s Nevertheless, it recorded a steady decline from also create a suitable platform for private sector months. growth forecast during this period. Towards there, with estimates of complete control in July. participation. It is important to look at this in the close of H1, Moody’s and S&P estimated Vaccination continued, despite numerous conjunction with the announcement of ARHC the growth to be approximately 9.6% and 9.5% roadblocks during this time, as India overtook the Guidelines of July 2020. respectively for FY 2022. th India started with two vaccines, viz., US by administering 32.36 crore doses on 28 June. SEBI announced a change in application value for Anxiety regarding a third wave later this year, hangs REITs and InvITs to INR 10,000 and INR 15,000 The second wave appears to be receding at the Covishield & Covaxin and added two heavily on the horizon though. respectively, from INR 50,000 and INR 1 lakh end of H1. Businesses are expected to recover Click here to read earlier. Also, the trading lot size was reduced to one. on the strength of advancing vaccinations in more, Sputnik-V and Moderna during This move has immense potential to attract retail the months ahead. Note: This section contains figures in Indian system of investors and open more avenues for investment. H1 2021. A fifth one is also expected lakhs and crores (refer Appendix for international conversions). during the year. 1 USD = Approx. 74.28 INR on June-30, 2021

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COMPLETIONS & Supply Addition: H1 2021 vs H1 2020 VACANCY HIGHLIGHTS % Change YoY H1 2020 H1 2021

New completions increased marginally by 4% 7.0 60% INDIA OFFICE YOY to about 18.0 mn sq. ft. Bengaluru has recorded the highest infusion of new supply 6.0 40% constituting a 36% share, followed by 20% MARKET UPDATE Hyderabad and Delhi-NCR at 28% and 22% 5.0 shares, respectively. 0% 4.0 Interestingly most cities namely Bengaluru, -20% Hyderabad, Mumbai and Pune saw an 3.0 increase in new completions compared to the -40%

same period last year. This is on account of mn sq.ft. 2.0 deferred supply getting completed, since -60% % change YOY construction activities were not hampered in 1.0 Scan to Download -80% WhatsApp version partial lockdowns imposed by the State governments. 0.0 -100% Overall India vacancy levels increased to Pune

16.2% at the end of June, as supply addition Mumbai Chennai Bengaluru Delhi NCR

exceeded the pace of leasing activity. Also, Hyderabad some occupiers optimised their real estate Source Savills India Research portfolios to an efficient space, thereby The year began with optimism and reimagined KEY STATISTICS: H1 2021 spiking the vacancy rates in select markets. It workspaces, as lessons from the first wave of the Only two cities, namely Chennai and Deal Distribution: Share in Total Leasing should be noted that this can be a temporary pandemic were getting implemented and businesses New Supply YOY change (in sq. ft.) phenomena in markets which are in a state of Delhi-NCR, saw reductions in new started to stabilize. But the unanticipated second wave Total India Stock flux. completions compared to H1 2020. hit hard in the second quarter, leading to a temporary 18.0 4% pause in expansion plans and dragging the leasing mn sq. ft. Up to 25,000 activity to a six-year low. 27.7% 621.8 Rental trends mn sq. ft. Gross Absorption YOY change Vacancy Levels The second quarter saw 65% QOQ decline in leasing Most markets have seen a decline in average 25,001-50,000 H2 2020 H1 2021 activity, owing to lockdowns and the severity of 50,001-99,999 25.0% 10.9 -38% 12.4% 16.7% rental values compared to last year, to the tune infection. In the next few sections, we highlight the mn sq. ft. of about 6% YOY. A few micro markets have performance of the office sector during the first half of seen a sharper decline as landlords exhibited 20.0% the year 2021. flexibility to attract new clients, while prime locations with limited availabilities saw stable 15.0% ABSORPTION HIGHLIGHTS: Gross Absorption in Major Cities H1 2020 H1 2021 YOY Decline % 100,000 or more rents. NCR submarkets saw softening of rents 6 0% 43.2% among other markets as depicted in the table 10.9 mn sq. ft. 10.0% -10% below.

5 - 1 6 % - 6 3 % At 10.9 mn sq. ft. gross office space absorption across India’s - 4 8 % - 3 8 % - 4 8 % - 3 9 % -20% 1 4.9 Demand Split by Sectors 5.0% six major cities registered a 38% YOY decline as occupiers -30%

4 % .

t 4.1 paused expansions and resumed portfolio optimisation e f

. -40% n i q l

s Select pockets kept overall rents c plans. The pecking order was not a surprise as Bengaluru 3 -50% 0.0% IT BFSI

3.2 d e continued to lead with 4.1 mn sq. ft. of leasing activity m n 2.7 -60% under pressure, thereby creating o Y 51% 12% 2 Pune representing 37% share in H1 2021. It also saw the lowest 2.3 2.4 Y 2.1 2.0 -70% conditions favourable to occupiers. Mumbai decline of 16% YOY, compared to the other five cities. -80% Chennai

1.4 Delhi NCR 1 1.4 Bengaluru Hyderabad Following Bengaluru, Delhi-NCR witnessed leasing activity 1.1 0.9 -90% Engineering & Flexible Source Savills India Research 0 -100% Manufacturing Workspace of 2.0 mn sq. ft. in H1 2021, recording a 38% YOY decline. i i e u d a a r n a C R n u 10% 8% While Mumbai and Hyderabad shared third place with u l b n m b a P a - N e r i u approximately 1.4 mn sq. ft. absorption, the annual decline in g e h Rental Range in H1 2021 n l M C h d e e leasing was sharper for Hyderabad at 48% compared to 39% y B D

H in INR per sq. ft. pm Low High Average YOY change* for Mumbai. Pharma & Consulting Large deals continue despite the Technology occupiers continue to Healthcare Bengaluru 40 156 0% The top cities of Bengaluru, Delhi-NCR and Mumbai 4% cautious approach drive demand and large leases 7% constituted around 69% of the total leasing activity in H1 Chennai 36 110 -1% 2021. Pune recorded approximately 0.9 mn sq. ft. leasing, Sizeable consolidations and expansions The technology sector continued to be the Hyderabad 35 70 -3% which was the lowest in volume as well as the largest decline have contributed to the share of large deals primary demand driver for office real estate in India with a 51% share, higher than last Others among these six cities. Chennai just managed to breach 1.0 (deal size more than 100,000 sq. ft.) in H1 Mumbai 45 400 -5% mn sq. ft., recording an annual decline of about 48%. 2021, accounting for about 43.2% of the year’s 48% share during the same period. 8% overall pie. Bengaluru witnessed the highest The Banking, Financial Services and NCR-Delhi 95 270 -6% rd share of large deals at 51%, followed by Insurance (BFSI) occupiers’ share declined Technology occupiers continue Mumbai & Hyderabad tie at 3 spot with NCR-Gurugram -3% Delhi-NCR and Hyderabad. to 12.3% compared to 15% in H1 2020 as they to lead followed by BFSI. 45 140 similar levels of absorption but the expanded cautiously. While Engineering Interestingly, small-sized occupiers While the share of tech companies NCR-Noida 50 80 -9% and Manufacturing accounted for 10.1% annual decline is steeper for Hyderabad. (<25,000 sq. ft.) also continued to optimize share which was higher than last year’s 8.0% has increased, their combined share Pune 40 115 0% their portfolios that resulted in a 27.7% share; the flexible workspace segment’s share of the total office leases in H1 2021. of approximately 63% is same as in *Averages do not reflect YOY changes within micro markets or select premium buildings in certain localities share declined to 8.3% in H1 2021 from 11.3% 1. Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai and Pune H1 2020. Source Savills India Research in H1 2020. savills.in 4 5 India Market Watch - Office – H1 2021 India Market Watch - Office – H1 2021

Grade – A Office Stock & Vacancy 15.9% 13.0% 12.4% 80.6 74.8 CHENNAI OFFICE CHENNAI 71.2

MARKET UPDATE MARKET 2019 2020 2021F Stock in mn sq. ft. Vacancy in %

OUTLOOK Source Savills India Research DEMAND Office Absorption (mn sq. ft.) in Chennai We expect leasing activity to be subdued in 2021 compared to the previous year. The expected absorption Scan to Download WhatsApp version is therefore approximately 3.5 mn sq. ft. for the year 2021. 6.0 Economic growth and advancing vaccinations are likely 4.3 to aid leasing momentum, despite an overall cautious 3.5 approach.

SECTORS 2019 2020 2021F The sectors such as Information Technology, Banking, Source Savills India Research Financial Services, Engineering and Design are expected to continue to constitute majority of office demand in the city. The flexible workspace segment is likely to see Average Rents (INR/sq. ft./month) similar levels of leasing momentum but is not expected to gain notable share in overall leasing in 2021. H1 2020 H2 2020 CHENNAI’S KEY 100 RENT & VACANCY 90 H1 2021 HIGHLIGHTS Rents in 2021 are likely to be stable over the next six 80 Demand driven by small deal sizes: Unlike the months. Along with stability in rentals, terminations and 70 preceding six months wherein large size deals of space surrenders are likely to be relatively less in 2021, 60 more than 100,000 sq. ft. dominated the leasing resulting in slight improvement in occupancy levels in 50 activity contributing to over 60% of the total select makets. However, overall vacancy levels are likely 40 office space demand, the first half of 2021 saw to increase owing to infusion of new supply. 30 smaller deals upto 25,000 sq. ft. contributing 60%. 20 Interestingly, transactions up to 25,000 sq. ft. were SUPPLY 10 quite significant in the OMR locations (combined The second half of 2021 is expected to witness 0 for Pre Toll and Post Toll) with a 32% share approximately 5.4 mn sq. ft. of new completions as CBD GST MPR OMR Pre PTR SBD Post Toll Toll Others followed by the Central Business District (CBD) construction activity resumes. This upcoming supply will be predominantly spread across MPR, GST & PTR with a 31% share and Guindy at 20% of the total LEASING AND in the second quarter of the year. About Source Savills India Research small deal transactions. COMPLETIONS 380,000 sq. ft. of new supply was recorded, locations. which implies a 90% YOY decline. All the Deals ranging 25,000 - 99,999 sq. ft. contributed Absorption: Chennai witnessed leasing new completions were noted in Guindy the remaining share of 40% in overall leasing activity of about 1.1 mn sq. ft. in the first half consisting of IT & commercial developments. MAJOR TRANSACTIONS H1 2021 activity. Majority of mid-sized deals were recorded of 2021 noting a 48% YOY decline. Majority in Guindy (39%) and MPR (25%). Transacted Area* of the leasing activity was concentrated in VACANCY RATE Tenant Micro market Building (sq. ft.) Despite the ongoing pandemic, 566,000 sq. ft. was Secondary Business District (SBD) Guindy, Overall vacancy of the city increased pre-committed by Technology and Engineering which accounted for close to 28% of the marginally and stood at 14% at the end CohnReznick SBD Guindy Olympia Tech Park 50,000 companies indicating strong business sentiments. absorption of the city, followed by CBD of June. The increase in vacancy can be and OMR Pre Toll locations that equally attributed to portfolio reassessment by DISYS SBD - OMR Pre Toll TRIL 50,000 contributed about 19% and MPR contributing several occupiers and slow pace of leasing. KEY STATISTICS: H1 2021 Technicolor PDB - OMR Post Toll ASV Suntech 40,200 around 16%. The first half of 2021 witnessed several relocations as the ongoing pandemic forced New Supply YOY change Sector Split: Technology sector continued SRM Technologies SBD - OMR Pre Toll RMZ Millenia 40,000 to contribute the majority share in the some of the occupiers to reconsider and re- 0.4 -90% leasing activity at 45%. In addition, the evaluate their real estate requirements. Zifo RnD Solutions SBD - MPR DLF Cybercity 39,700 mn sq. ft. BFSI occupiers were active too with a 20% RENTS CHENNAI MICRO MARKETS share. Interestingly, the leasing activity by CBD - , , R K Salai, , T Nagar, Greams Road the healthcare occupiers (in absolute terms) Overall city rents declined marginally by PTR – PBD - Link Road Gross Absorption YOY change 1% compared to the previous six-months’ SBD - Guindy & MPR- Guindy Estate, Little Mount, Ekatuthangal, Mount Road, continued to be consistent compared to the SBD - Pre Toll OMR- , , MGR Salai same period last year. average. Notable decline of about 3-5% YOY PBD - Post Toll OMR- Thoraipakkam, Shollinganallur, , 1.1 -48% was recorded in Pre Toll, MPR and GST Ambattur – PBD- Ambattur mn sq. ft. SBD Others - , Arcot Road, , Supply: There is a huge decline in new locations. GST Road – PBD- , completions as the city witnessed lockdown *Approximate and indicative areas only

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ANNEXURE: KEY BUDGETARY ANNOUNCEMENTS AND REAL ESTATE IMPLICATIONS

PLI schemes Professionally managed Infra Push: 35% of INR 2 Tn Development Financial allocation increase • Major step for making India a Institution; Debt route • Proposed building of 8,500 hub for manufacturing and for REITs kms of National Highways by exports March 2022 • Better monetisation of real 02 03 • Key sectors: Pharma, Auto, 01 Textiles, Electronics, Telecom estate assets • Additional 11,000 kms by March 2024 and Food products • Expectation of greater • Pharma one of the favourites: participation by institutional Local advanced pharmaceutical investors ingredient manufacturers already received PLI approvals • Sector specific parks to be set up as well

Sector Infra sector including Sector New RE development Sector Manufacturing & Impact Manufacturing, Logistics, Impact corridors Industrial & Impact Warehousing and Warehousing Logistics push

Disinvestment of land Affordable housing Speeding up stressed and monetisation of focus and tax holiday asset resolution non core PSU assets extensions • New bad loan bank to be set up • Model Tenancy Act approved • Tax holiday extension and • Faster revival or disposal of to create inclusive rental interest benefits on affordable stuck projects in RE sector housing market 04 housing home loans 05 06 • Stake sales of PSUs including • Boost investor confidence in banks and insurance recently launched ARHC • SPVs to monetise land owned scheme by PSUs • Crucial land availability for housing sector • Favourable for Model-1 of ARHC scheme

Sector Affordable Sector Affordable Sector Residential & Urban Impact Housing Impact Housing Impact Development

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APPENDIX

Glossary incentivize private and public entities to develop such housing complexes Atma Nirbhar Bharat Scheme on their own available vacant land also. Atma Nirbhar Bharat schemes are COVID-19 specific relief packages (worth Production Linked Incentives (PLI) Scheme approximately INR 29.87 trillion) announced in 2020 by the Government of PLI Scheme aims to provide incentives to companies on incremental India, targeted at various sectors of the economy. sales from products manufactured in domestic units to boost domestic Model Tenancy Act, 2021 manufacturing. The scheme also aims to invite foreign companies to set Model Tenancy Act, 2021 aims to create an effective regulatory ecosystem shops in India. in India to govern landlord-tenant relationship benefiting the urban middle Integrated Goods & Service Tax (IGST) class, working professionals, students and floating population. Under GST, IGST is a tax levied on all Inter-State supplies of goods and/ Affordable Rental Housing Complexes (ARHCs) Scheme or services, governed by the IGST Act and tax will be shared between the It provides the guidelines for affordable rental accommodation targeted Central and State Government. at migrant workers & urban poor. Under the scheme, existing vacant Savills Savills India Savills India provides services across office government-funded housing complexes across major cities will be Savills plc is a global real estate services provider Savills India is a group company of Savills leasing, project management, capital markets, converted into ARHCs and offered to concessionaires for 25 years to rent listed on the London Stock Exchange. We have an Plc. and is a premier professional international valuations, research, consulting, industrial and out the units to urban poor and migrant workers. The government will international network of more than 600 offices and property consulting firm. With full-service offices logistics, and residential services. Starting in 39,000 associates throughout the Americas, the in Bengaluru, Mumbai, Delhi-NCR, Chennai, India in 2016, the company employs over 350 UK, continental Europe, Asia Pacific, Africa and Pune and Hyderabad, the firm serves Occupiers, professionals. Abbreviations & Acronyms IMF - International Monetary Fund the Middle East, offering a broad range of specialist Investors and Developers of Real Estate. BFSI - Banking, Financial Services and Insurance mn. - Million advisory, management and transactional services bn. - Billion MPC - Monetary Policy Committee to clients all over the world. GDP - Gross Domestic Product MoSPI - Ministry of Statistics & Programme Implementation InvITs - Infrastructure Investment Trust RBI - Reserve Bank of India REIT - Real Estate Investment Trust INR - Indian Rupee Research Central Management Regional Management INR per sq. ft. pm - INR per square foot per month sq. ft. - Square Feet IT - Information Technology Arvind Nandan Anurag Mathur Bhavin Thakker Managing Director Chief Executive Officer Managing Director - Mumbai Research & Consulting Savills India Head - Cross Border Tenant Advisory [email protected] [email protected] [email protected] Key Definitions Megha Maan Kaustuv Roy Sarita Hunt Director Managing Director Managing Director Research & Consulting Business Solutions Bengaluru Term Definition [email protected] [email protected] [email protected]

• Includes all constructed / completed buildings listings Suryaneel Das Naveen Nandwani Shweta Sawhney Stock/Inventory Assistant General Manager Managing Director Managing Director • This includes existing buildings plus new completions Research & Consulting Commercial Advisory & Transactions Delhi-NCR [email protected] [email protected] [email protected] • New office buildings that have received their certificates of occupancy within the period Diksha Gulati Praveen Apte Supply • Buildings that have their structure ready and have occupier/s operating out of it or fit-outs are being carried out Senior Manager Managing Director Research & Consulting Media Queries Pune [email protected] [email protected] • Sum of all leases including expansion, relocation and consolidations Nitin Bahl Gross absorption/Gross Abhinav Pal Anup Vasanth • Does not include full-term renewals which are after the nine-year lease expiry Director Leasing/ Leasing activity Manager Marketing, Sales and Strategy Managing Director • Includes leasing of entire tower by an occupier within an IT park/development Research & Consulting [email protected] Chennai [email protected] [email protected] Average Rental Values/ • A fair estimation of asking rent and deal closure rent Sesha Sai Rents Managing Director Hyderabad Vacancy • Total vacant space as a percentage of Inventory/Stock [email protected]

Term International Definition Gurugram Mumbai Bengaluru 3-A, Second Floor, Building 9B 403, Tower B, Level 4, The Capital 15th Floor, SKAV SEETHALAKSHMI Crore • Ten Million (10,000,000) DLF Cyber City, Phase 3 Street 3, G Block, Bandra Kurla Complex Corporation No.21, Kasturba Road Sector 24, Gurugram 122002 Bandra East, Mumbai 400 051 Bengaluru 560001 Haryana, India Maharashtra, India Karnataka, India Lakh • One Hundred Thousand (100,000) Chennai Pune Hyderabad Savills, 5th Floor, North Wing WeWork Futura Office No. 02A114, WeWork Harmony Square, New No. 48 & 50 Magarpatta Road Krishe Emerald, Hitech City Praksam Street, T. Nagar Pune 411 028 Hyderabad 500081 Chennai 600017 Maharashtra, India Telangana, India Tamil Nadu, India

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Savills, the international real estate advisor established in the UK since 1855 with a network of over 600 offices and associates globally. This document is prepared by Savills for information only. Whilst the information shared above has been shared in good faith and with due care with an endeavour to keep the information up to date and correct, no representations or warranties are made (express or implied) as to the accuracy, completeness, suitability or otherwise of the whole or any part of the deliverables. It does not constitute any offer or part of any contract for sale. This publication may not be reproduced in any form or in any manner, in part or as a whole without written permission of the publisher, Savills. © Savills India 2021.