India to remain a preferred global outsourcing destination amidst subdued office leasing activity

Thanks to its large base of technical knowledge and cost-effective talent. 

According to Savills, office activity in India has grown strongly over the last few years, with a CAGR of over 8% during 2014-2019. 2018 and 2019 were record-breaking years for office leasing. 2020 was expected to be a third successive growth year, but the pandemic-induced slowdown reversed the trend, shaping the 2020 story very differently. 

2020 saw a temporary trough in office market activity with both leasing activity and new completions declining from the previous year. Office space absorption across India’s six major cities stood at 31.9 million sqft in 2020, which was a 43% YoY fall. It is to be noted that 2019 saw an all-time record-high of 55.7 million sq ft of leasing. 

Here’s more from Savills:

Demand continued to be driven by the technology sector in 2020, constituting 48.7% of total leasing. This was marginally higher than 46.3% in the previous year. Interestingly, some large consolidations and expansion deals were recorded during 2020. Of the total office leases in 2020, around 60% comprised deals which were 100,000 sq ft each or larger. 

New completions during 2020 also declined by 35% YoY to about 30.6 million sq ft. The overall India vacancy level increased marginally to 11.7% in 2020 as new supply exceeded the pace of leasing activity. Most cities witnessed rises in vacancy levels as demand remained subdued. Generally, the markets saw stable rents with certain pockets leading the decline as occupiers gained an upper hand in certain cases.

The trend of subdued leasing activity and constrained new supply continues in 2021, after a brief hope in early months, as markets remain strained during the ongoing second wave. However, confidence is expected to return as the country progresses with vaccinations. Once a significant majority of the population is vaccinated leading to near normalcy, we expect India to remain a preferred global outsourcing destination on account of its large base of technical knowledge and cost-effective talent. India should witness a systematic growth of Global In-house Centres (GICs) and start-ups, as well as gig workers.

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