GURUGRAM, India, Feb. 26, 2021 /PRNewswire/ — In 2021 occupiers should enter flexible leases to allow them to operate in a hybrid work-from-home model and keep their CAPEX low. With new demand likely remaining slow in H1, Colliers expects Grade A office rents to decline in 2021, with overall rents dropping by 3.7% this year and showing improvements from 2023 onwards.
“Occupiers will continue to look for flexibility from developers as employees gradually return into offices in H1 2021. Managed office and enterprise solution players will play a key role in the overall take-up of offices spaces throughout 2021. Pragmatic migration towards a hybrid office portfolio should gain momentum amongst the occupier community. Expenses incurred for transporting employees towards office may get replaced with taking smaller offices closer to employee hubs or be in campuses with good transport connectivity,” said Bhupindra Singh, Managing Director, Regional Tenant Representation (India) at Colliers.
During 2020, office leasing activity remained sluggish as the uncertain economic environment and business conditions brought on by COVID-19 nudged occupiers to postpone their decisions and reassess their real estate portfolios. Net absorption across major markets in India was 20.6 million square feet (1.9 million sq meters), a decline of 42.8% YoY. Occupiers focused on portfolio optimization by relocating, consolidating and downsizing. About 45% of the demand was led by technology firms with larger companies still considering expansion in recently completed projects with better wellness and hygiene standards. As COVID-19 drags into 2021, we expect transaction volumes to remain subdued over the first half. We expect technology firms to continue to lead office space demand in Bengaluru, Hyderabad, Pune, Gurgaon and Noida, where some firms have announced plans to ramp up the hiring process.
“Technology companies are expanding and are likely to fuel demand for office space over the next two years. Over the next three years, technology companies dealing with digitization, artificial intelligence, machine learning and robotics ought to expand led by increasing demand for such services. We expect tech companies to continue to look at markets like Bengaluru, Hyderabad and Chennai,” said Arpit Mehrotra, Managing Director, Office Services (South India) at Colliers.
Despite concerns about potential oversupply in select micro-markets and muted demand, we saw new supply in 2020 of 38.1 million square feet (3.5 million sq meters), a 2.4% decline YoY. Bengaluru, Hyderabad and Delhi NCR drove the bulk of new supply.
During 2021, Colliers forecasts net absorption of 20 million sq feet (1.8 million sq meters), similar to 2020. After seeing a 42.8% decline in demand in 2020, we believe that in keeping with global trends, occupiers will optimise their portfolios in 2021 and 2022. Occupiers approaching lease expiration are undertaking portfolio optimization efforts by relocating to cheaper and/or smaller offices. For perspective, in 2021, leases expiring total about 81 million sq feet (7.5 million sq meters), with 65% of these being smaller than 10,000 sq feet (929 sq meters). We note that Delhi-NCR, especially, is witnessing this trend with occupiers moving to locations such as Golf Course Extension Road in Gurugram.
During 2020, flexible workspace operators leased about 3.0 million sq feet (278,707 square meters) of space, accounting for 9% of the total leasing. The operators are expecting greater traction in demand for their centers as occupiers look at stop-gap arrangements while optimizing their portfolio. We expect that occupiers are implementing hub-and-spoke models with space closer to residential areas, and flexible workspace can help meet this need.
“Mumbai is emerging from one of the stringent lockdowns, however, with business picking up and markets opening up we see demand rising in H1 2021,” said Sangram Tanwar, Managing Director, Office Services (Mumbai) at Colliers.
In view of the COVID-19 pandemic, landlords ought to become increasingly focused on health and wellness. As seen above, developers that invest in well-being and health will likely see better returns. This underpins the importance of a high-performance building (HPB) with focus on sustainability and wellness.
“We foresee occupiers optimising their real estate portfolio prioritising employees’ well-being while keeping their real estate commitments flexible and scalability options open in 2021”, said Animesh Tripathi, Senior Director, Office Services, Pune at Colliers.
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Colliers (NASDAQ: CIGI) (TSX: CIGI) is a leading diversified professional services and investment management company. With operations in 67 countries, our more than 15,000 enterprising professionals work collaboratively to provide expert advice to real estate occupiers, owners and investors. For more than 25 years, our experienced leadership with significant insider ownership has delivered compound annual investment returns of almost 20% for shareholders. With annualized revenues of $3.0 billion ($3.3 billion including affiliates) and $40 billion of assets under management, we maximize the potential of property and accelerate the success of our clients and our people. Learn more at corporate.colliers.com, Twitter @Colliers or LinkedIn.
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