Chennai Market Watch, Office: H1 2021
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H1 2021 SPOTLIGHT Chennai Market Watch Savills Research Office India 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 Reserve Bank of India 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 savills.in 2 3 India Market Watch - Office – H1 2021 India Market Watch - Office – H1 2021 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 10.0% % % % % % 10.9 mn sq. ft. % below. 6 8 8 3 8 9 -10% 1 6 4 3 4 3 5 - - At 10.9 mn sq. ft. gross office space absorption across India’s - - - - -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% e n IT BFSI 3.2 d continued to lead with 4.1 mn sq.