Demand for office real estate is bouncing back but remains short of peak demand

stocks

Indian Market
by 5paisa Research Team Last Updated: 2022-12-22T13:15:59+05:30

Office space absorption, which had been hit hard during the Covid-19 lockdowns and the new trend of work-from-home and flexi working requirements across industries, has seen an uptick.

Net leasing of commercial office space in India is expected to grow 10-15% this fiscal year as also the next year to 28-30 million square feet (msf) and 31-33 msf, respectively, riding on improvement in demand as employers increasingly favour employees working from office, albeit with some flexibility, according to rating and research agency CRISIL.

Demand is expected to be below the pre-pandemic high of around 42 msf in the year ended March 2022, but will likely come within a kissing distance of the FY19 mark of around 34 msf.

While global recessionary headwinds and slower hiring in technology may lead to a possible deferment of leasing plans, thereby subduing demand growth in the next two quarters, the strength of the Indian economy and competitiveness of commercial real estate is expected to keep the demand drivers intact.

CRISIL says the office leasing market growth in the coming year will be supported by three factors: IT/ITeS sector, which accounts for close to half of office leasing space, will continue to witness low single digit employee addition; physical occupancy at offices across sectors, will increase from 30-50% at present; and the Indian economy will remain resilient and sectors such as BFSI, consulting, engineering, pharma, and e-commerce - accounting for close to a third of office area - will add office space.

The IT/ITeS sector had hired aggressively last fiscal as well, taking its employee base up around 15%. Return-to-office for the expanded employee base will continue to require more office space. Additionally, while the anticipated slowdown in global economies may result in temporary deferment of leasing decisions, on the brighter side, it increases the probability of more offshoring to India, which is a low-cost centre.

The occupancy levels will stagnate at 84-85% this fiscal, against previous expectation of an improvement by 100-150 bps, due to deferment of leasing plans. But this is likely to inch up to 85-86% next fiscal.

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