Office leasing looks up as people start returning to work

Large IT companies are leasing properties as they foresee substantial growth going ahead, says CREDAI, Bengaluru

September 19, 2021 08:52 pm | Updated November 22, 2021 09:43 pm IST - Bengaluru

With new COVID-19 cases reducing and more people returning to work, the real estate market is seeing a positive response to office leasing.

With new COVID-19 cases reducing and more people returning to work, the real estate market is seeing a positive response to office leasing.

With new COVID-19 cases reducing and more people returning to work, the real estate market is seeing a positive response to office leasing.

According to ANAROCK Property Consultants, the main southern office market has overtaken other regions in terms of new supply, net absorption, and even rental growth, with Bengaluru, Hyderabad, and Chennai seeing an increase in their share of total office leasing.

Raghu Cheluvaraju, General Manager- Corporate Leasing, Vaishnavi Group, said Bengaluru continues to see above average vacancy levels through 2021. However, market sentiment has improved and leasing has picked up through Q2 and especially in Q3, he said.

“Leasing has gone up as occupiers that have been looking to come back to office for sometime have found opportunities to lease new spaces or consolidate. Some IT occupiers are announcing back-to-office plans, whereas occupiers that work around teamwork and collaborative approach have already come back to office. The fact that people are going everywhere except offices has been noticed, but companies have been sensitive, considering employees have elderly people or children at home. With the vaccination drive being aggressive and schools reopening now, even these apprehensions are being addressed,” he said, adding that the high vacancy peripheral markets will experience some stress over the next quarter, but the market is poised to recover in Q1 - Q2 of 2022, when most employees are expected to come back to office.

Monica Matthias, Director, Hoysala Projects, said premium office spaces in the MNC technology spaces has seen an absorption increase of over 20% this year despite the second wave of COVID-19.

Errol Fernandes, vice-president, CREDAI Bengaluru, said the sector is currently facing an over supply situation. “Constructing an office space takes around three years. All builders have slowed down construction and new projects are on hold till the situation improves. Large clients (such as IT parks) continue to pay rent as their servers cannot be relocated and are critical to their functioning. However, small clients have surrendered their office space or are not renewing their leases. Current vacancies are in the region of 10%,” he said.

How then is leasing up? Mr. Fernandes explained that they are taken up by large IT companies as they foresee substantial growth going ahead.

Despite a multitude of challenges, the sector is on the growth trajectory and new opportunities are emerging from sub-sectors like warehousing, data centres, and logistics. The growth of this sector is well complemented by the growth in the corporate environment and the demand for office space as well as urban and semi-urban accommodations, said Farook Mahmood, Chairman and Managing Director Silverline Group.

 

“On a positive note for commercial real estate leasing business, the market was hopeful of a gradual return to business as usual. And the immunisation drive carried out by the government added much-needed confidence as vaccinations pick up pace, business sentiments improve, and occupiers start to revisit their return to office and space strategies. Despite the second wave, several RFPs and ongoing deals remained active suggesting that demand is expected to bounce back as conditions improve over the next six to 12 months,” he added.

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