Office leasing witnesses recovery, absorption will accelerate further

The office absorption rate is witnessing an uptick in the market, this implies that the occupiers are returning to close ongoing deals that got stalled in Q2’2020 due to the prolonged lockdown.  Despite the acute tensions that loomed large over the office leasing market because of the lockdown and the subsequent WFH model;  the office leasing market has started showing a remarkable comeback from Q3’2020 onward and this trend has further gained traction in Q4’2020. Occupiers are still interested in having their real estate portfolio and landlords are showing flexibility and willingness to work much closer with occupiers during these tough times.

Progress tracker:

. In pre-COVID times the average rental yield for commercial properties was between 7-10 %, which slide down slightly in Q2’2020, but the market has been on the road to recovery from Q3’2020 onward, has got stronger in Q4’2020 and will reach the pre-COVID level by Q1’ 2021.

. Office space is linked to global consumption and thus will pick up faster than other sub-sectors of CRE, with relevant micro-market vacancies being low office sector is on a path of sustainability.

. Contractual obligations are on the fore of all the upcoming deals, lock-in periods, exit notices, and force majeure clauses are some of the important components now, from both a developer and occupier perspective.

. The current office market leans towards being tenant favourable.

Forecasted trends:

. Businesses have gradually opened up now in Delhi NCR, the fresh supply and leasing activities started improving from the second half of the year.

. In Delhi NCR almost 40 % of the working population have resumed their offices.

. Stakeholders like occupiers, FM companies and developers, were quick to adjust to new normal and changed their business strategies. MNCs are bullish on leasing office spaces.

. Occupiers looking at smaller offices in different locations rather than the hub-and-spoke model of large consolidated spaces.

. De-densification of existing offices for employees health and safety,  also so that they can adhere to social distancing norms.

. REIT getting strong support talks volumes about the continued attractiveness of the commercial office sector.

The right time to commit to future office spaces

. This is the right time for the occupiers for committing to future office spaces as they might get flexibility/benefits from the landlords.

. Leverage on the vacancy at the CBDs, as these vacancies might just be for few more months before the markets boom again for quality office spaces and rents skyrockets as there is a limitation of supply in key micro markets of NCR.

. Delhi NCR is the second leading market for office leasing in India,  as occupiers continue to close deals here.

Future Trends:

. Employees miss the office work environment given lack of social interaction in the WFH model, IT issues, low motivation levels etc.

. There will be no major reduction in the office footprint of bluechip companies.

. IT/ITES companies are still preferring quality spaces in large tech parks.

. The demand for flexible office spaces will increase because there is a possibility that start-ups and some other businesses will move out of the expensive and will take up space in flexi offices.