Office space absorption to grow 12-18% next fiscal, says Crisil

Between FY18 and FY20, net leasing of commercial office space clocked a healthy compound annual growth rate (CAGR) of 15-20 percent, with Hyderabad, NCR and MMR accounting for the bulk of the pie.

This was driven by a healthy pace of employee addition (6-7 percent CAGR in the past 3-4 years) in the IT/ITeS and BFSI sectors.

"The trend has reversed this fiscal due to the demand destruction and heightened uncertainty brought by the pandemic, with corporate revenues taking a hit and most companies adopting a work-from-home policy," the Crisil report said.

Employee additions, especially in the IT segment, wilted to around 80,000 during April-December 2020 compared with around 2 lakh annually before the pandemic, partially restricting incremental leasing.

Overall, net leasing is estimated to decline 35-45 percent on-year this fiscal to 20-25 msf in top six cities.

“Despite limited expansion by corporates this fiscal, rationalisation of supply and deferment of a few projects to the next year have restricted vacancy build-up. However, next fiscal, with around 35 msf of supply estimated to be completed, vacancy levels are likely to rise by 200-300 bps across the top six cities. Also, rental rates will remain constrained next fiscal after witnessing decline of an estimated 3% this fiscal,” said Isha Chaudhary, Director, CRISIL Research

Meanwhile, the recent listing of the third REIT in India also shows investor confidence in the commercial office market.

The overall situation continues to evolve. A shift towards flexible working options offered by employers and the protracted impact of the pandemic could affect rentals and occupancy in the commercial space and will remain key monitorables, Crisil said.