As COVID-19 cases continue to surge, companies are delaying their leasing decisions as the return of employees is postponed further. It has dented the demand for office space between the January-March period (Q1CY21).
As per an Edelweiss report, demand for office space declined by 44% to 3.6 msf (million square feet) in Q1CY21. And, new construction work was also affected as new supply came down by 14% at 10.9 msf on a quarterly basis.
Bengaluru and Hyderabad emerged as the pick of the markets in terms of demand as well as supply. Kolkata was the only other market where demand increased. All the other major markets including MMR, NCR, Chennai, and Pune witnessed a sharp decline in demand.
Slower Demand Affects Fresh Supply
Unlike residential projects, the commercial realty segment has done well since CY13. However, the pandemic has disrupted this flow. Weaker demand has prompted developers to go slow on new projects, resulting in a lower supply of office space.
IT Segment, PE Funds Dominates the Demand
The Information Technology segment has been a major occupier of office space in India during CY16-20 with ~42% demand coming from it. A similar trend continues in Q1CY21 as well where IT continues to be a major market.
However, healthcare, e-commerce, and flexible workspace segments are emerging as the major sectors for commercial realtors. They will also depend on the flow of private equity who have been the major investors in the office space over the last few years.
The Disruption
The commercial real estate sector has thrived in India since 2013. However, COVID-19 led disruptions have threatened to disrupt this bull run.
Under the new normals, companies are shifting to asset-light models to reduce the fixed costs. The growing popularity of work from home culture has fastened up this process. Companies are also in for prolonged cost control measures and reducing rental and office maintenance costs is an effective way to achieve that.
