Covid-19 impact: Average office rental in the Delhi-NCR market declines - Check details of property consultant Knight Frank report

In its half-yearly report, property consultant Knight Frank India has said that the average office rental in the Delhi-NCR market declined by 9 per cent to around Rs 78 per sq ft a month during the first half of this calendar year as demand was hit due to the COVID-19 pandemic. The new supply plunged 86 per cent to 8 lakh sq ft from 59 lakh sq ft during the period under review.

"As all business activities had paused during the lockdown, many organisations approached landlords for rent waivers and deferments in the second quarter of 2020. Businesses are reworking their targets and outlook for the remainder of this CY/FY and want to save on real estate operating expenditure which constitute nearly 3-5 per cent of their operating income," the Knight Frank India report said.

The demand for office spaces from the co-working sector has also slowed down considerably in NCR, which was a major occupier segment until H2 2019.

"As a result, rents have come under downward pressure as landlords fear exits from existing tenants. In H1 2020, weighted average rentals declined by 9% YoY to INR 844 per sq meter per month (INR 78.4 per sq ft per month)," the report added.

Going forward, the consultant said that rents might be further rationalised when leases come up for renewal. At the same time, demand contraction for office spaces in the short term would provide an opportunity for corporates to lock-in long term leases for expansion at cheap rents, in premium office buildings in otherwise expensive locations across NCR.

"2019 was a landmark year for National Capital Region (NCR's) office market as it witnessed huge supply infusion of 123 lakh sq ft, the highest in the past 8 years. Occupier demand, too, remained strong with total office space leasing of 86 lakh sq ft, the highest in a decade," the report said.

The weighted average rentals recorded only 4 per cent annual growth in 2019.

Knight Frank said that the market was poised for large scale occupier expansions to materialize in 2020, but the Covid-19 outbreak in March completely altered the scenario.

"As the national lockdown was imposed in India from March 25th, 2020, limited gross leasing of 21 lakh sq ft was recorded in NCR in H1 2020 (Jan-June period) as decision making at corporate occupiers' end came to an abrupt halt," the report said.