office rental rates: Bengaluru, Mumbai, Delhi may witness increase in office rental rates, say experts

office rental rates: Bengaluru, Mumbai, Delhi may witness increase in office rental rates, say experts

Bengaluru, Mumbai and Delhi are expected to witness an increase in office rental rates, even as commercial players in top cities will lose some space due to work from home still being in place in many companies, say industry experts.

Bengaluru, Mumbai and Delhi will record a jump in rentals of 2.8%, 1.5%, and 6%, respectively, according to a report by Nirmal Bang Equities.

With 20-25% of the workforce opting for the work-from-home option, it is leading to a loss of 10-15% office space, it said. The recoverability of this is expected over 3-4 years.

The report has been prepared on the basis of a call hosted by Crisil with participants from leading developers like Brigade, Tata Realty & Infrastructure, Mindspace Business Parks REIT, DLF, Nexus Malls and Embassy.

Southern cities continue to drive demand in the office market, with much of it coming from the IT and ITeS sector and startups, while in the northern and western markets, BFSI, consulting and related businesses are the primary source of demand, said Piyush Gupta, managing director, Capital Markets & Investment Services, at property consultancy Colliers India. “There has been some large leasing activity across markets in the past quarter.”

Net absorption of office space declined from 42 million sq ft in FY20 to 20 million sq ft in FY21, even as vacancy levels increased from 11.5% to 14%, the Nirmal Bang report said.

The commercial real estate segment witnessed a structural shift during Covid-19 as many companies adopted the ‘work-from-home’ culture and found it cost effective, the report said. “Mumbai, Bengaluru, Chennai and Pune will witness lower supply addition as percentage of stock and vacancy levels will remain down,” it added.

Analysts said the commercial real estate segment is expected to recover at a faster pace in the near to medium term, led by increase in headcounts in IT/ITeS services and other sectors, resumption in ‘work from office’ and hybrid work models given the rapid vaccination drive and easing restrictions.

The overall expectation is that with steady normalisation of the economic environment, offices are expected to start opening up post Diwali.

However, the impact of work from home is expected to be evident somewhat, with 20-25% of the workforce likely to work from home permanently.

Attendance in large office complexes has been increasing and is likely to further get better with increased travel, vaccination and rebound of business activities, said Gupta. “Large global funds and private equity investors continue to show strong confidence in India’s office market by investing in both core and development assets. The occupancy levels now look stabilised and could witness the uptick in coming quarters.”

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