Commercial office spaces in India have seen some improvement in new leasing over the preceding quarters, according to Embassy Office Parks REIT, as some occupiers slowly return to workplaces after the nation lifted the lockdown curbs. But the average demand over previous years is still significantly lower.
“Most corporate real estate executives of our tenants are in a ‘pause and assess’ phase. When Covid came, there was a pause, there was a focus on making sure that the business continuity was there, people were working from home. And then they moved to the assessment stage. How are we going to respond as an occupier in the coming months and years?” Mike Holland, chief executive officer at India’s first publicly listed real estate commercial investment trust, told BloombergQuint in an interview. “Now there’s a pause on significant new leasing… But the good news is that there has been a significant uptick in leasing quarter-on-quarter from the first quarter, which was the lockdown period. New leasing went up by 8% in the second quarter. So, we see that as a good trend.”
India’s booming office-leasing market was threatened by work from home as the nation imposed one of the world’s harshest lockdowns to contain the coronavirus pandemic. A Knight Frank survey pointed to a 37% year-on-year drop—the steepest in a decade—in office-space transactions to 17.2 million square feet in the first half of 2020 in the top eight cities. Office space surrendered during the period stood at 6.3 million square feet.
But commercial space absorption picked up as the curbs were lifted. Gross absorption in top six Indian cities—Bengaluru, Chennai, Delhi-National Capital Region, Hyderabad, Mumbai and Pune—rose 58% sequentially at 6.5 million square feet in the quarter ended Sept. 30, according to Colliers India. The rise in leasing activity, the international property consultancy said, signals that occupiers are returning to the drawing board to close ongoing deals that were stalled earlier.
During January-September 2020, however, gross absorption fell 46% over the year earlier to 22.5 million square feet due to the prolonged lockdown in the country.
“There’s a very significant dichotomy between the way international and domestic tenants are approaching back to work,” Holland said. “While 20-40% employees of the domestic companies are back, for international companies we are seeing it is still sub-10%.”
That, he said, is clearly linked to the experience the international companies are having in the U.S. or in Europe and Australia which are witnessing a second wave of the Covid-19 infections. In India, however, the cases numbers have been on a net decrease since September.
Embassy REIT owns and operates 33.3 million square feet portfolio and is present in Bengaluru, Mumbai, Pune, and the NCR. It recently announced its plan to acquire Embassy TechVillage from affiliates of Embassy Sponsor, Blackstone Sponsor and other selling shareholders for Rs 9,800 crore ($1.3 billion). After the acquisition, Embassy REIT’s portfolio will scale to 42.6 million square feet.
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