Observing that the impact of the third COVID-19 wave has receded, leading to a noticeable improvement in business sentiments, India Ratings and Research (Ind-Ra) has revised the outlook for the commercial real estate sector (CRE) to improving for FY23 from neutral in FY22, anticipating an improvement in performance.
It has witnessed a pick-up in the new leasing activity for office space from 3QFY22, and expects office leasing to grow at 10%-15% year-on-year (YoY) in FY23. New leasing activity had declined to 25 million square feet (msf) in FY21 from 37 msf in FY20 on account of the remote working regime during the COVID-led crisis. However, leasing activities picked up in FY22 especially 3Q onwards and was at around 28.0 msf (up 12% YoY).
Considering the rapid vaccination drives, leading to relaxing of COVID-19 led restrictions, resumption of offices in the hybrid mode and retail spaces opening steadily, the CRE is poised for a gradual recovery and growth, it said.
Ind-Ra has observed that rentals for office spaces in FY22 remained steady, 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 1QFY22, due to non-renewal of expired leases, voluntary annulments and subdued demand/fresh leasing due to uncertainty on ‘return-to-office’.
Shift in Demand to Grade A Realtors
As quality will play a key part for corporates in buying decisions, the absorption of Grade A office space will be higher. Properties which 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 versus 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, it said in its analysis.
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