Anticipating an improvement in performance of commercial real estate sector owing to the receded impact of the third wave of Covid that has led to a noticeable improvement in business sentiments, India Ratings and Research (Ind-Ra) has revised the outlook for the segment to improving for 2022-23 from neutral in 2021-22.
Considering the rapid vaccination drives, leading to relaxing of Covid19 led restrictions, resumption of offices in the hybrid mode and retail spaces opening steadily, the commercial real estate is poised for a gradual recovery and growth.
The ratings agency has witnessed a pick-up in the new leasing activity for office space from the third quarter of FY22, and expects office leasing to grow at 10%-15% on-year in FY23. New leasing activity had declined to 25 million sq ft in FY21 from 37 million sq ft in FY20 on account of the remote working regime during the covid-led crisis.
Leasing activities picked up in FY22 especially October-December onwards and was up 12% at around 28 million sq ft.
Rentals for office spaces remained steady in FY22, with the resumption of economic activities post opening up of lockdown. However, the vacancy increased to 15% end-FY21. The vacancy level had been increasing through FY21 till first quarter of FY22, due to non-renewal of expired leases, voluntary annulments and subdued demand/fresh leasing due to uncertainty on ‘return-to-office’, India Ratings observed.
As quality will play a key part for corporates in buying decisions, the absorption of Grade A office space will be higher. Properties that are more tech-ready with digitalisation and modern amenities in response to emerging behavioural patterns and demand for safe spaces will see higher occupancy and demand.
A strong upturn was observed in hiring activity across markets and sectors such as IT/ITES, BFSI, telecom pharma, retail, education, e-commerce, consulting & analytics, manufacturing, research and real estate in January 2022 vs January 2021. Surge in hiring is a product of the hybrid work culture, which will lead to a subdued demand for office space after the pandemic ends, India Ratings said.
