Despite economic recovery, office leasing won’t see a quick turnaround
At the peak of the coronavirus crisis, increased adoption of work-from-home culture came as a dampener for commercial properties. Then, analysts had cautioned although the demand for office spaces may not get completely wiped out, leasing activity would take a toll.Latest data by property consultant Knight Frank India showed that office leasing activity improved in the second half of 2020. In the December quarter, office leasing activity saw a two-fold rise on a sequential basis to 1.63 million square meter. However, total office transactions for H2FY20 dropped by 33% year-on-year (y-o-y) to 2.06 million square meters. These include fresh transactions, relocation based transactions and pre-commitments.Also Read Digital bank account sparks off a disruptionFurther, average office rents in Bengaluru, Chennai and Hyderabad maintained 2019 levels despite the volatility experienced in 2020. Rents in Mumbai, Pune and NCR, however, fell by 5.6%, 6% and 4.4% respectively, showed their research. According to experts at Knight Frank, the decline in total transactions is far better than anticipated.Still, a quick turnaround in office leasing activity is not foreseen at least for the next six months. Some analysts say, companies are unlikely to fast track their expansion plans unless the pandemic-led economic uncertainty is completely out of the way.Until the global Covid-19 concerns reduce, corporates will relook at their space requirements in CY20E and expansion or consolidation plans will be put on the backburner.“Given the fact that 30-40% of Indian office space demand originates from the USA, a prolonged economic slowdown in the USA will likely lead to reduced demand for offices in H1CY21. We expect leasing activity to pick up from H2CY21 as international travel may pick up again along with effective Covid-19 vaccines," analysts at ICICI Securities Ltd said in a report on 12 January. Little wonder then that supply has come-off. New office completions in 2020 dropped by 42% y-o-y to 35.5 million square feet, showed the Knight Frank data.On a sector basis, IT-ITES remains top-most in terms of share of office occupancy across major Indian cities. Analysts estimate that the sector’s share in office occupancy stands at 35-40%. Stellar earnings performance of IT majors does provide a glimmer of hopes for recovery in office leasing activities. However, adoption of hybrid working models, which do not require employees to come to office on a daily basis and is cost effective, could delay the revival of office space demand.“Our channel checks suggest that office collections remain steady, but the three big unknowns may limit sector re-rating: once travel restrictions ease, will lease momentum pick up; consolidation of offices; extent of renewal of the expiring leases on the backdrop of firming up of work from home policies," analysts at HDFC Securities Ltd said in a report on 12 January.