Office space leasing at 4.3msf in Q3CY21 shows signs of revival, says a research report by Edelweiss. The report also expects that the consolidation in the office space in favour of financially strong developers is helping them gain market share.
“Progress on vaccination rollout and resumption of employees’ return to offices bode well for demand; however, large upcoming supply is likely to keep vacancies high and rents under pressure in the near term.”
“During Q3CY21, while office space demand rose 21% QoQ to 4.3msf (up 48% YoY), supply came in at 6.9msf (down 3% QoQ/9% YoY). Vacancies were flat sequentially at 16.6% (up 220bp YoY). Bengaluru and Hyderabad generated the bulk of demand during the quarter. Except Bengaluru, Hyderabad and Kolkata, vacancies rose QoQ across the board. Tech-dominated markets such as Bengaluru and Pune still enjoy single-digit vacancies. Rentals declined marginally QoQ; developers also gave concessions such as lower CAM charges/higher rent-free period,” said the report.
The report also expects the ongoing crisis will accelerate the consolidation process. “While supply will eclipse demand in the near term (leading to likely pressure on rentals), pickup in demand over the medium term is likely to ensure the demand-supply mismatch does not spiral out of hand. Lesser market fragmentation renders this space ideal for recovery.”
However, the report adds a word of caution – “We believe fresh leasing trajectory hinges on the pandemic’s path hereon. While an improvement in leasing is expected, we believe CY21 leasing is unlikely to match the 20msf absorption witnessed in CY20 considering that 9MCY21 demand is just 11.5msf (down 14% YoY).”