The seven-year bull run of the commercial office sector was significantly impacted by covid
Top real estate developers have begun work on large office towers in key cities, assuming an early rebound in demand that was disrupted by the coronavirus pandemic.
Embassy Group, K Raheja Corp, DLF Ltd, and Prestige Group expect demand to be led by IT/ITes, e-commerce, and pharmaceutical firms, which will need to expand office space as they hire aggressively.
The seven-year bull run of India’s commercial office sector was significantly impacted by the covid-19 pandemic in 2020, when leasing fell to about 25 million sq.ft from an all-time high of 46 million sq. ft the previous year.
The second wave has delayed return of employees to offices and, perhaps, also the decision-making process of many tenants. Still, some developers believe that they need to construct for the future, when there will be demand for Grade A office space.
“We are bringing in speculative supply and want to construct ahead of the visibility of demand," said Vinod Rohira, MD and CEO, Mindspace Business Parks. “We are developing projects in Hyderabad, Pune, Chennai, and Mumbai, and seeing reasonable demand from IT and tech sectors. Grade A office space demand will be sporadic and companies will bring back employees by the March quarter of next year, provided a third wave does not hit," he said.
Mumbai-based Mindspace Business Parks is building a prime office property in Mumbai’s Worli in a joint venture with Singapore’s GIC and a second project of 400,000 sq ft in the same location. In Pune,Mindspace has 1.4 million sq. ft under construction in the eastern quadrant, and is starting two more projects.
Bengaluru-based Embassy Group has an 18-20 million sq. ft development pipeline for commercial office projects in the city, which will be built over the next five years. This will entail construction cost of ₹8000 crore to ₹10,000 crore. The under-construction and upcoming projects are located in north Bengaluru and Outer Ring Road.
“There is a huge demand. Many firms are looking for space. So, we are very bullish about this space," said Jitu Virwani, chairman and managing director (MD), Embassy Group.
DLF has around 11.4 million sq. ft under construction, in Gurugram, Noida, and Chennai. The company said in July that the rental business is facing a temporary dislocation, but as employees get vaccinated demand for office space is expected to return.
Realty consultants believe that leasing momentum will be around 25 million sq. ft, on a par with 2020.
“The key challenge in 2021 was that the second wave impacted re-entry of employees in offices and slow vaccination pace," said Ramesh Nair, CEO, India and MD, market development, Asia, at property advisory Colliers. “Decision making will be slow because occupiers are still cautious. Requirements are getting smaller and firms are taking about 25% less space compared to pre-covid times because people are working from home. However, global funds such as Blackstone and Brookfield are sitting on significant dry powder and some of it will come here. There are smaller developers who are struggling and will be slow on speculative launches. If that happens and demand outstrips supply, office rentals will rise," Nair said.