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Demand for office spaces in India may suffer significant contraction as the coronavirus pandemic and restrictions imposed to stem its spread cripple companies worldwide, according to a report by real estate services firm Anarock.

What could, however, leave a more lingering impact on demand is if companies allow workers to continue to work from home even after the immediate crisis blows over.

“Having experienced telecommuting during the covid-19 pandemic, many companies may consider this as a long-term strategy, which will result in optimizing their real estate requirement and operations cost," the report said.

Demand for office spaces will be affected as net absorptions are likely to drop by 17% to 34% in 2020 from the pre-covid-19 projections, the report said.

This is mainly because US-based companies, which typically lease between 40-50% of annual net offtake of office space, are the biggest occupiers in the country. This is followed by local companies that occupy nearly 30%, while those in Europe—one of the worst affected by covid-19—contribute 10% of the overall leasing in the Indian office market.

“Given the high chance of the US economy suffering due to covid-19 impact, its negative effect will be felt in India with a drop in office space leasing.

European Union based firms do not influence India’s annual office space offtake as much as their contribution typically hovers at 10-12%, but much of that is going to evaporate given the high adverse impact of covid-19 in Western and Southern Europe and in UK," the report said.

“Given the sluggish business environment and that is likely to be prevalent post the covid-19 outbreak period, it will put rentals under tremendous pressure. While we expect that the vacancies may not rise significantly owing to the supply-demand equilibrium, occupiers would like to re-negotiate the cost and other terms," it added.

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