Office leasing picks up but full recovery looks distant
- Firms restart renting but opt for hub-and-spoke model where less space is needed
Leasing of office spaces is seeing green shoots of recovery, but a bounce back to last year’s levels is still a long time away.
Companies have gradually begun to hire more space, but the office sizes are smaller while some large occupants are adopting the hub-and-spoke model, wherein a large office is complemented by smaller satellite workspaces to make them more accessible to people.
After a seven-year-long bull run, the office sector hit a rough patch this year with the outbreak of covid-19, with global and domestic companies hitting a pause on decision-making. Vacancy levels have also inched up after several years as absorption or leasing of new supply of office spaces remained tepid.
According to property advisory firm JLL India’s estimates, 2020 will end with net absorption of office space of 25-27 million sq. ft in key cities. This is a sharp drop from 46 million sq. ft in 2019, an all-time high.
The preceding year 2018 had seen leasing of around 36 million sq. ft, while the average annual net absorption over the past decade was 31 million sq. ft.
“Compared to this year, we expect 2021 to see net absorption of office space to the tune of 30-33 million sq. ft. While global in-house centres and multinational companies (MNCs) are taking up space, the requirement for space has become smaller by 20-25% as companies resort to a hybrid working model with work-from-home,” said Ramesh Nair, chief executive officer and country head, JLL India.
Property consultants said companies were waiting till July to take a call on leasing, but have started taking decisions after August.
Mumbai Metropolitan Region (MMR), Bengaluru and Delhi-NCR have started picking up in the past three months as new-age companies such as Amazon India and Netflix, as well as global firms in technology and banking and financial services are taking up fresh spaces.
Siddharth Goel, senior director, research, Colliers International, said the office sector is not out of the woods yet as countries enter the next phase of lockdown. “Companies which already committed, have signed letters of intent, are going ahead while others are waiting. Till now, companies were going with the flow and signing up space. Covid has made them realize they should follow a hub-and-spoke model as they look at decongesting offices and spread across cities,” he said.
While recovery in the office sector is expected from the end of 2021, it will pick up pace only by 2022.
Anshuman Magazine, chairman and chief executive, India, South East Asia, Middle East and Africa, CBRE, said however that the office sector in India has performed better than many other countries.
“Though the impact on larger occupiers has not been much, mid-sized and smaller firms have cut down the amount of space needed, relocated to cheaper locations, consolidated office space and renegotiated rentals. Complete recovery will take a couple of years,” he said.
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First Published:23 Nov 2020, 07:23 AM IST
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