While in most other countries and territories, economies were turning down in Q2 from Q1. Certain office markets nevertheless held up surprisingly well. Chief of these were the seven major Indian cities, where gross leasing fell by only 36% over H1 2020as a whole despite a lengthy national lockdown. Among the three cities included in Collier's aggregation, Bangalore (Bengaluru) was the star of the show, with gross absorption of 172,000 square metres in Q2. Delhi-NCR was also firm, although Mumbai slowed down noticeably. Bengaluru topped the charts with a net absorption of 0.50 million square meters in H1 2020.
Bengaluru remains not only a top occupier location (notably for technology companies), but also Asia Pacific’s second largest Grade A office market by stock after Tokyo. Over H1 2020 as a whole, the biggest drivers of new supply in APAC were the Indian cities. Bengaluru led the way with new supply of 641,000 square metres, followed by Delhi-NCR on 445,000 square metres. While the bulk of this new supply represented projects in the final stage of completion that had been held back from 2019, a lot of activity was reported in India despite a national lockdown. Other major drivers of supply included Melbourne CBD, where 218,000 square metres of new office stock (all grades) were delivered over H1.
“Bengaluru continues to remain the strongest market for office leasing, backed by a historic absorption in 2019, the city has shown resilience in H1 2020 by being at the top despite a slowdown due to the lockdown. Over the period 2022-2024, growth in office space demand in APAC will be led by both India & China. We anticipate most South India markets will see sharp recoveries and growth in 2021 in comparison with 2020 ”, said Arpit Mehrotra, Managing Director, Office Services (South India) at Colliers International India.
Besides China, Colliers can foresee heavy increases in new supply in two of the leading Indian cities in H2. For Bengaluru, Colliers predicts new supply for 2020 of 1.90 million square metres, up 24% YOY. For Delhi-NCR, we predict new supply in 2020 of 1.68 million square metres, up more than 3x from 2019 and the highest level in three years. If COVID-19 spreads further in India, development projects may see delays, but this did not happen in H1.
Outlook: five years to end-2024
In India, we expect new supply in Bangalore and Delhi-NCR to ease from the high levels of 2020, but to remain above 1.0 million square metres annually. In contrast, we expect new supply in Mumbai to settle at around 540,000 square metres per annum. By 2023, the three large Indian cities should have exceeded the Chinese Tier 1 cities (plus Chengdu) as sources of new supply.
Outlook: H2 2020 and five years to end-2024
Weighted average APAC rents should fall 5.0% over 2020
In H2 2020, we expect more of the same across APAC. Landlords in many markets will be competing for a limited demand pool. The team at Colliers think landlords will attempt to differentiate their product offering by increasing attention to health and safety, advanced mechanical systems, and wellness and environmental credentials. However, prices remain important in a recession. The firm expects to see many landlords increasing incentives, driving down net effective rents. Manila, Hong Kong SAR, Shenzhen and Sydney CBD among developed markets, and Manila and Jakarta among emerging markets, should record rent declines of over 10% by the end of the year. Overall, we expect weighted average rent to fall 5.0% in 2020.
Rents should start to pick up in 2021
While this is understandable in the light of the COVID-19 recession, we expect rent to increase marginally from this year’s lows in 2021, as the forecasted economic recovery becomes evident. Over the next five years, Singapore, Bangkok and Bengaluru should see rents increase at 3.0% or more, while Delhi-NCR, Auckland, Melbourne and Taipei should see rents increase in excess of 2.0% as demand catches up with planned supply. Steady vacancy levels with tight demand and supply should support the increasing rents in these markets.
Colliers forecasts that Over H2 2020, deal volumes should pick up further in China, but the outlook for Tokyo and Australia is more challenging. In the long run, popular occupier centres with high rent growth offer the best potential for capital growth, e.g. Singapore, Bangalore, Melbourne CBD and Auckland.