Office sector to see delayed revival on second wave woes
The onset of the second covid wave may lead to a delayed recovery for India’s commercial office sector, which continues to see a dip in leasing volumes. In the March quarter, gross absorption in the top six cities was 4.3 million sq. ft, down 49.8% year-on-year, according to a Colliers-Ficci report, The Future Workplace: Resolving Uncertainty-Charting the Future of Offices in India.
Lease transaction volumes are expected to remain subdued in the first half of FY22 and improve gradually in the second half, as the vaccination drive picks up pace, the report said.
“We forecast net absorption to be around 20 million sq. ft in 2021, similar to 2020,” it said.
After a seven-year bull run in rentals, falling vacancies and a record leasing volume of 42 million sq. ft in 2019, the commercial real estate market stumbled globally in the pandemic.
According to a ICICI Securities Ltd report on 15 April, while 2020 was a weak year with 20 million sq. ft of net absorption owing to covid-19 impact, net absorption is expected to gradually improve and touch an estimated 24.3 million sq. ft in 2021 and 29.8 million sq. ft in 2022.
“While green shoots were emerging in January with a pick-up in leasing enquiries and large pre-leasing transactions, the second wave may lead to a delayed recovery for the office market. We expect leasing to pick up towards the end of September, as international travel may pick up again along with effective vaccines, versus July as estimated earlier, and the current trend of occupiers downsizing and delaying new leasing decisions to continue in the near term,” ICICI Securities said.
Pre-covid, Bengaluru had low Grade A vacancy of 5% and accounted for around 22% of the net absorption in office space in 2019. It is expected to retain more than 25% of net absorptions over 2021 and 2022.
Unlike the residential market, which has relatively lower entry barriers in India, the office and retail or shopping mall market is a capital-intensive business. The size of office developments and malls have increased and improved in quality over the years, and analysts are positive about it in the long term.
ICICI Securities said India’s long-term advantages remain as a high-quality office hub with just 8-10 developers, affordable monthly rentals of under $1 or ₹70-75 per sq. ft, and the availability of science, technology, engineering and math talent.
More firms may adopt a hybrid working model and include co-working spaces to give employees some flexibility, it added.