Office space leasing to increase by 10-15% in 2022 : Experts

February 24, 2022
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Office vacancy level across eight major cities increased marginally to 17% in the fourth quarter of calendar year (CY21) from 16.9% in the previous quarter but the exodus of companies from large building complexes due to Covid-19 appears to be bottoming out, according to an analysis by ICICI Securities.

Experts said vacancy levels will fall going forward.

“Occupiers’ intention to expand is expected to exert downward pressure on vacancies in the coming years,” said Anshuman Magazine, chairman & CEO-India, South-East Asia, Middle East & Africa at CBRE.

As per the report, vacancy in NCR has increased to 27.7% in Q3CY21.

Post the onset of the first Covid-19 wave in India from March 2020 (Q1CY20), Grade A vacancy levels across India’s top seven cities have risen by 3-8% till December 2021.

Among these, the Hyderabad market has seen the highest rise in vacancy levels from 5.5% in Q1CY20 to 15.1% in Q4CY21 due to a combination of tenant exits and large completions/supply.

While the Omicron surge has temporarily delayed the recovery in office leasing by a quarter, experts expect this trend to reverse from April this year onwards with the improved pace of vaccinations across India, select corporates recalling employees to offices and gradual pick-up in international travel.

“We anticipate that this space take-up would be a combination of pent-up demand and expansionary/consolidation-led leasing as occupiers start to realign their business strategies after a long hiatus post the pandemic,” said Magazine.

Office leasing activity in India witnessed a steady recovery in 2021 with gross absorption touching 41.1 million sq ft, an increase of about 16%.

This momentum is likely to continue in 2022 with gross absorption expected to increase by about 10-15% on an annual basis.

“We firmly believe that vacancies have bottomed out and the graph will turn positive in 2022. Given the relatively subdued impact of Covid phase (Omicron), we have already seen request for proposals (RFPs) from occupiers out in the market with several large transactions slated to close in first half of 2022,” said GaganRandev, executive director, India Sotheby’sInternational Realty.

Heading into CY22, commentary from REITmanagers indicate that incremental portfolio exits will be balanced by new leasing and many tenants retaining office space.

The only dampener is that vacancy levels across REITs have cumulatively risen by 500-900bps between March 2020 and December 2021 owing to tenant exits.

While the jury is out on the eventual outcome of the back to office plans of various corporates, broad consensus is that 15-20% of employees may permanently work from office (WFO), 10-15% of employees may permanently work from home (WFH) while balance 60-70% of employees may work under a hybrid model of WFO with WFH.

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