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Office sector recovery still a few quarters away, say top developers

While the pace of leasing may be slow, transactions are happening. (Mint)Premium
While the pace of leasing may be slow, transactions are happening. (Mint)

  • DLF Ltd has seen vacancy levels inch up in its Cyber City property in Gurugram, as weaker tenants moved out including some co-working and hospitality firms, it's management said
  • The commercial office sector witnessed a blip last year due to the pandemic after a seven-year long bull run

The commercial office sector in India is seeing early signs of revival as leasing picks up momentum, however overall recovery may still be a few quarters away.

Despite the vote of confidence by investors in the recent launch of the third real estate investment trust in India last week by an entity of Canada’s Brookfield Asset Management, and large investments, fresh leasing of space remains slow.

DLF Ltd, India’s largest real estate firm, has seen vacancy levels inch up in its Cyber City property in Gurugram, as weaker tenants moved out including some co-working and hospitality firms, the company’s management said in the recent analyst call. Enquiries have increased between December and January and it also leased 200,000 sq ft of space, the company said.

“We are witnessing green shoots of fresh leasing. This momentum will pick up over the next few quarters with substantial progress in the vaccination program and openness to travel," Sriram Khattar, MD-rental business, DLF Ltd said in an interaction.

Despite the increased adoption of work-from-home and a hybrid working model by IT/ITES firms, which are the largest occupiers of office space in the country, top developers believe that they will continue to dominate leasing going forward.

“Low rentals and availability of skilled manpower would continue to make India a preferred spot to set up back offices by global companies. We expect another couple of quarters to pick up momentum in leasing. Many tenants are already bringing forward their date of starting workplaces," said Mike Holland, CEO, Embassy Reit.

The commercial office sector witnessed a blip last year due to the pandemic after a seven-year long bull run, with all time high of 46 million sq ft of office space leased in 2019.

Ram Chandnani, MD, advisory and transaction services India, CBRE said while overall leasing pace is still slow, large corporates are looking at big commitments in the June quarter.

“We believe leasing by tech companies will grow and new players in offshoring and outsourcing will also come in," he said.

“Employees are returning to work and there is a visible rise in physical occupancy in offices. As companies return to workplaces, they may adopt a flexible work policy and are likely to increase the per employee space, from 75-80 sq ft to around 100 sq ft. Indian companies have also returned much faster compared to multi-national firms," said SanjayDutt, MD and CEO, Tata Realty and Infrastructure Ltd (TRIL) and Tata Housing.

While the pace of leasing may be slow, transactions are happening.

Max Estates, a subsidiary of Max Ventures & Industries Ltd on Tuesday said it has leased 79,933 sq ft. at Max Towers, Noida to law firm Cyril Amarchand Mangaldas and around 7,300 sq ft to DBS Bank. It recently leased another 62,500 sq ft to Yes Bank.

"Cyril Amarchand Mangaldas Delhi will be shifting to Max Towers Noida in June. This is a newly built, modern building which includes special spaces for informal exchanges and hot desking for lawyers who are mainly working from home," said Cyril Shroff, managing partner, Cyril Amarchand Mangaldas.

DLF’s Khattar said India has a competitive advantage in terms of a young , English speaking and tech savvy population whose wage cost is comparatively low coupled with low real estate costs which makes it a favourable destination for outsourcing , whether these are captives or third-party companies.

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