Term renewals drive India’s robust office leasing momentum in Q1

Renewals accounted for 38% of the gross leasing activity during the quarter.

Keeping pace with the recovery momentum witnessed during Q4 2020, Cushman & Wakefield reveals India’s gross leasing activity recorded a 5.3% q-o-q growth with 12.2 msf of Grade A office space leased during Q1 2021. 

While Mumbai accounted for the highest share (24%) in the quarter, Bengaluru being one of the most active markets, closely followed with a 20% share followed by Delhi-NCR at 17%. Hyderabad and Chennai together have contributed about 30%. 

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On an annual basis, Q1 2021 gross leasing activity was lower by 25.4% indicating a dip in the market activity post the pandemic. However, the quarterly growth in gross leasing is indicative of a broader recovery in the office markets as economic activities resumed and some occupiers executed their space strategies. 

Fresh leases accounted for 49% of the total gross leasing across cities indicating improved momentum for expansion among occupiers, followed by term renewals and pre-commitments, which contributed 38% and 14% respectively. Leasing in Chennai has more than doubled on the back of higher term renewals while Mumbai and Hyderabad have also witnessed a double-digit growth during the quarter.

Term renewals

Recovering business sentiments and resumption of economic activities led to a better occupier confidence on their long-term prospects over the last 6 months, though cost control remains an essential parameter under consideration for RE portfolios. Amidst the pandemic and continued uncertainty, occupiers are extending their leases at current locations by going ahead and concluding term renewals, looking to save on capex spends, relocation costs and negotiating hard with landlords on the new lease terms. 

Even as fresh leasing activity picked up pace, term renewals drove the momentum, accounting for 38% of the quarterly gross leasing activity in Q1 2021, similar as compared to Q4 2020 (38%). At 4.6 msf, the Q1 2021 term renewals are higher by 90% on an annual basis (up by 3% q-o-q). 

At the city level, Mumbai and Chennai accounted for 39% and 24% of recorded term renewals in Q1 2021. The share of term renewals in the overall leasing activity has more than doubled over the last 12 months. Term renewals together with ongoing renegotiations for pre-renewals showcase a gradual recovery in occupier sentiments and their mid to long-term growth outlook on the economy

Pre-leasing activity

For occupiers with better visibility on their business, definite expansion plans and sizeable future requirements, COVID-19 era has been the right time to enhance their footprint. At 1.7 msf, pre-leasing accounted for a 14% share in overall leasing activity, almost similar as compared to Q4 2020 (15%). Bengaluru accounted for the major share of 46% followed by Hyderabad and Pune at 15% each. 

Delhi-NCR and Mumbai together accounted for a 20% share in pre-leasing activity during the quarter. While some occupiers went ahead with pre-leases early in the quarter, others who were still working towards finalizing space strategies and waiting for budgetary approvals have immediately put them on hold given the resurgence of COVID-19 during latter part of Q1 2021.