The gradual unlocking of cities, mass vaccinations and the drop in infection rates is giving hope to businesses looking for a chance to recover in the second half of 2021. With business opportunities on the rise even now, new workplace trends being implemented and increasing demands for office spaces, commercial developers are looking forward to a quick recovery of the commercial office real estate market. Now expecting the eventual return to offices, companies are looking at newer concepts in terms of business models and workplace experience models. Large-scale businesses are even looking at supersizing their office space requirements coupled with tech-enabled solutions to help facilitate social-distancing friendly workplaces in the post-Covid scenario.
Due to massive surge in work orders, businesses especially in the IT and ITeS sectors are undergoing a bulk hiring spree in order to ensure a healthy sales/business pipeline is maintained in the current year. In the first 9 months of FY 2021, approx. 42000 employees were hired by just top 4 IT companies alone - HCL, Infosys, Wipro and TCS. Multinational giants like Capgemini and Cognizant have also expressed their bulk hiring plans for the year 2021 - 23,000 and 30,000 new employees respectively. To accommodate these incoming employees now and those in the coming future, office space demand is on the rise. This trend of mass hiring and increase in office space demand is expected to pick up even more momentum in 2022.
The Game Changer:
2021 has a very high lease expiry pipeline, even more than 2022 and 2023. More than 7400 office leases of almost 90 mil sq. ft. space are coming up for renewal in Q3 and Q4 of 2021. Comparatively, 2022 has 7000 leases of approx 78 mil sq. ft. and 2023 has 4200 leases of over 55 mil sq. ft. up for renewal. These leases span across Mumbai, Pune, Bengaluru, Gurugram, Chennai and Noida alone.
The two cities which have been hit the worst by the pandemic, Mumbai and Pune, have the highest and second highest number of leases which are up for renewal. In terms of the number of leases, Mumbai alone stands at 44% while Pune stands at 17% of the total 7400 leases.
Of the 90mil sq. ft. of office space leases coming up for renewal, Bengaluru has the highest share of 37% while Mumbai takes up 19% of the pie.
Following the top 3 cities come Chennai with 5% of the total leases (and 12% in term of total area), Gurugram with 15% of the share (total leases and total area) and Noida with 3% of the share (total leases and total area).
What does this mean for the commercial office space sector?
With Business now going into recovery and rehabilitation mode and office space leases, and employees now on the verge of returning to offices, big business are bound to renew their leases to meet with growing demands, breathing new life into the office space sector.
Additionally, office leases are long-term, which means that when the leases up for renewal were originally signed (3 to 5 years ago) they were at much lower rentals. Thus, many of these leases have room for escalation in rental agreements. While this might result in some smaller companies considering rationalizing space, most mid to large-scale companies will have to continue their leases to continue conducting business. This will further boost the commercial office space sector.
