News: Office space absorption to grow 12-18% next fiscal: CRISIL-25-02-2021
Despite this, net leasing next fiscal will be below pre-pandemic levels as the impact of work-from-home will continue to weigh on leasing decisions of corporates.
NEW DELHI: Net leasing of commercial office space across the country will grow 12-18% to 25-30 million sq ft on-year next fiscal, riding on a low base of the current fiscal, gradual return of tenants to offices, and improvement in the macroeconomic situation, a CRISIL analysis has showed.
Despite this, net leasing next fiscal will be below pre-pandemic levels as the impact of work-from-home will continue to weigh on leasing decisions of corporates.
Between fiscal 2018 and 2020, net leasing of commercial office space clocked a healthy compound annual growth rate (CAGR) of 15-20%, with Hyderabad, NCR, and MMR accounting for the bulk of the pie. This was driven by healthy pace of employee addition (6-7% CAGR in the past 3-4 years) in the IT/ITeS and BFSI sectors.
The trend has reversed this fiscal due to the demand destruction and heightened uncertainty brought by the pandemic, with corporate revenues taking a hit and most companies adopting a work-from-home policy. Employee additions, especially in the IT segment, wilted to about 80,000 during April-December 2020 compared with about 2 lakh annually before the pandemic, partially restricting incremental leasing.
A few large deals, especially in the e-commerce, BFSI, and technology sectors in cities such as Bengaluru and Hyderabad, did nevertheless, provide some support to leasing. Overall, net leasing is estimated to decline 35-45% on-year this fiscal to 20-25 msf in top six cities.
Isha Chaudhary, director, CRISIL Research said, "Despite limited expansion by corporates this fiscal, rationalisation of supply and deferment of a few projects to the next year have restricted vacancy build-up."
However, next fiscal, with about 35 million sq ft of supply estimated to be completed, vacancy levels are likely to rise by 200-300 bps across the top six cities. Also, rental rates will remain constrained next fiscal after witnessing decline of an estimated 3% this fiscal.
"Around three-fourths of the leased area is occupied by tenants present in sectors having low impact of the pandemic (such as IT or BFSI) or those with high financial strength. Furthermore, substantial investments in fit-outs by tenants and high market rentals have deterred tenants from vacating. That said, 5-7% of the tenants from retail, start-ups, etc, are seeing stress on their business due to the pandemic and are at risk of vacating," said Anand Kulkarni, director, CRISIL Ratings.
