The Indian commercial real estate office market saw record leasing in CY19 with 42 million sq. ft of annual net absorption. The office market has been in an upcycle over CY14-19 with rising rentals, falling vacancies, consolidation among developers and the emergence of REITs.
However, the evolving global situation owing to the COVID-19 pandemic has spoiled the party in the year 2020 and the net absorption during the year is expected to remain around 25 million sq. ft as against the last 10 years’ average of 30-31 million sq ft.
Sector experts believe that the office space leasing activity may pick up in 2021 and is likely to be at par with the 10-year average i.e. 30-31 msf.
“While net absorption has taken a beating in Q2-Q3CY20 owing to lockdowns across India’s Tier I cities, a number of pre-leasing deals being signed augurs well for a pick-up in occupancy levels from CY21. We expect office leasing to see a pick up from Q2CY21 (April 2021 onwards) and expect 28 msf of net absorption in CY21E,” ICICI Securities said in a report.
Further, the pandemic–induced lockdown has also delayed the supply of office spaces as around 149 msf of offices were expected to hit the market over CY20-23E.
“This number has already shrunk 30 percent to 102 msf as of September 2020 with around 30 msf expected to be completed in CY20E. Hence, we now expect 30 msf of completions each in CY20E and CY21E. With both demand and supply expected to fall 30-40 percent over CY20-21E, we believe that vacancies may not see a steep increase from current pan-India levels of 13 percent,” ICICI Securities said.
Meanwhile, the co-working segment is expected to gain in medium to long-term, although there will be a pain for the next one year, analysts said.
The average co-working space has doubled to 70,000 sq ft in 2020 from 35,000 sq ft in 2019. Enterprises are taking up space in co-working setup and these coworking players are now catering not just to freelancers and startups but to larger enterprises and hence they are taking up bigger spaces, according to JLL India.
“Future of co-working will be bright. Today a lot of companies and enterprises want flexibility. Lot of corporates don’t want to make capital expenditure on office interiors and they are increasingly opting for co-working spaces. The future is going to be very good for co-working players. However, there will be a lot of pain the next one year but if they survive this period then the future is really great for them,” said Ramesh Nair, Country Head and CEO, JLL India at a webinar organized by Workplace Trends India.