The challenges posed by the second wave of COVID-19 infections in the country are adversely impacting the expansion plans of the corporates who are deferring their office leasing decisions, a development that is likely to disrupt the revival of commercial realty in 2021. While the year 2020 ended on a relatively high note, occupiers continued to adopt a cautious approach amidst increasing concerns around the new Coronavirus strain. The spike in the number of COVID-19 cases, especially March 2021 onwards, further propelled the occupiers to take a backseat and postpone their real estate decisions, especially in the metro cities.

As per a report by JLL, the overall commercial real estate market witnessed a decline in net absorption by 37 percent, YoY, in Q1 2021 at 5.53 million sq ft. While the other major cities reported a decline of 33 percent in net leasing on a sequential basis (QoQ) during the studied quarter, Delhi NCR and Bangalore remained exceptions with a marginal increase in net absorption levels as compared to Q4 2020. Pre-commitments in new completions played a pivotal role in driving net absorption in these cities. The deals, however, remained restricted to projects by reputed developers with a proven track record of timely delivery.  

Overall, low offtake and addition of new inventory led to an increase in the vacancy levels, which increased from 14 percent in Q4 2020 to 14.9 percent in Jan-Mar 2021. According to Aman Trehan, Executive Director, Trehan IRIS, After being hit by the COVID-19 pandemic in the financial year 2020, the Indian commercial real estate market was hopeful of the coming year, 2021, to make up for the previous year’s loss. But, with the recent surge in the COVID-19 cases, the market conditions are again on a cautious mode due to the unprecedented times. The office space vacancy levels have grown from 12.8 percent in March 2020 to 14.9 percent in March 2021, which clearly shows the adverse impact of the pandemic on the real estate sector.”

Similar to the previous quarters, the Information Technology (IT) sector continued to be the major occupier of office spaces, followed by engineering, healthcare, e-commerce, and flexible workspace segments. The IT/ITeS segment ruled the roost, also in the case of pre-commitment activities with over 40 percent of the share of pre-committed space across major micro-markets in 2021.    

Unlike the residential market, commercial real estate in India has been performing relatively well since 2013. However, the pandemic has slowed down the momentum, prompting developers to keep a lid on new projects, further resulting in a lower supply of office spaces. In Q1 2021, around 6.9 million sq ft of new commercial office spaces were added to the market, which is a decline of 48.1 percent, YoY, states a report by Colliers India.

Also, under the new normal, companies are increasingly shifting their focus to asset-light models to minimise fixed costs. The growing popularity of work-from-home concept has further fueled the process; wherein, the companies are extensively seeking cost control measures, majorly to reduce office maintenance costs. As the second wave forces companies to hold back their decisions, the recovery of commercial real estate might witness a delay.

The silver lining

While the situation is grim, particularly after the night curfews and partial lockdowns imposed by the State governments, the increasing attendance in offices across major markets, right before the second wave, is a testimony to the commitment of corporates to get back to work. As the vaccination drive picks up the pace, commercial players seem to be cautiously optimistic about the increase in office space leasing in the ensuing quarters.

As opined by Prasoon Chauhan, Founder and CEO, BlackOpal, “Despite the disruption caused by the global pandemic in the recent quarters, office space absorption has improved as compared to the year 2020. Cities like Delhi NCR are further likely to witness increased leasing activity in 2021, especially in the second half of the year. The investors are looking for high-quality office properties, which are in demand due to rapid job growth and the possibilities of more REIT listings.”

Echoing similar sentiment, Sagar Saxena, Project Head, Spectrum Metro, avers, “Office spaces in well-located Grade A properties, InfoTech parks, and even logistics centers are producing consistent and stable returns. After the pandemic, the investment in the commercial segment has increased. The pandemic has made people realise the importance of financial stability, and we are likely to witness increased absorption of commercial spaces in the coming quarters.”

“With the advancement in vaccination programs, the demand for commercial spaces will once again boom in the times to come. People will learn to adapt, innovate new spaces and create their own working environment. Mixed-use spaces, offering supporting infrastructure, such as housing, commercial, and shopping will indeed have an edge over others. The global economy seems to be reviving, and a large part of India’s commercial real estate sector is being driven by MNCs and corporates. Therefore, we see the demand for organised, consolidated spaces reviving in the ensuing months.”Nandini Taneja, Vice President, Reach Pro Group

As per a report by Savills India, office space absorption across India’s six major cities is expected to reach 41.3 million sq ft, marking a growth of 22 percent, YoY. The demand is likely to be driven by positive government reforms, improvement in economic activities, and pre-leasing tie-ups. On the supply front, close to 130 mn sq ft of the projects are under various stages of development across the top six cities currently. Even if 20 percent of the projects are delayed, the supply pipeline in the coming years is likely to remain stable, predicts ICRA.


While the demand for commercial spaces is likely to take a hit in the short run due to the imposed restrictions, the long-term prospects appear favourable. The market is likely to bounce back in the second half of the year, especially with a steady pipeline of assets becoming operational in the near term. Moreover, since lessees need to bear hefty fit out costs while cancelling a lease, large-scale lease cancellations are unlikely, unless the economy goes into a complete lockdown phase.