By Raghavendra Kamath
Corporates looking at the hybrid work model and startups downsizing their workforce may cause a temporary blip in leasing of office properties but would not have a major impact in the long run, office developers and consultants said.
Many companies such as TCS, Ericsson, Tech Mahindra and others have allowed hybrid work where employees are allowed to work from office as well as home, thereby reducing the dependency on office spaces for work.
According to a report published by Nasscom last month, over 80% of IT companies are likely to adopt the hybrid method over the coming months to assuage the demand of 70% employees. On the other hand, startups such as Byju’s and Udaan have fired staff to reduce costs and experts say this could have an impact on office leasing. However, developers see only a minor impact of the two trends on the IT and startup segments.
“There may be a minor blip in the short term but we are seeing no headwinds for now as companies have also in parallel grown and hired a huge talent force during the past three years of pandemic…as their business continued to grow. They need to have space to have them back even if in a hybrid mode,” Juggy Marwaha, CEO – Prestige Office Ventures, a unit of Prestige group, said.
On startups downsizing staff, he said that even though multinational companies continue to be a big focus for them, the company has leased a good amount of space to startups across its parks in Bengaluru and Chennai.
“Indian business fundamentals with a large consumption market are still a big story and we are in talks with many Indian startups for more space take-up,” Marwaha said. Out of 1.3 million Prestige leased in CY2022, 30% was leased to startups, he added.
Nirupa Shankar, executive director at Bengaluru-based Brigade Enterprises, said: “Office campus occupancy was at an all-time low of just 5% post the second wave. However, in 2022, we have seen a steady increase in office campuses, which are now at close to 40% occupancy on average, and this is steadily increasing month on month.”
Shankar said that companies that had put their office expansion plans on hold are now coming back to them with their requirements. “Tenants have now understood that for collaboration and innovation to happen, employees need to meet, speak and brainstorm together,” she said.
Niranjan Hiranandani, managing director at Hiranandani Group, said that large conglomerates have chalked out plans to ramp up office occupancy of nearly up to 70-75% in the near future and have seen a rise in fresh as well as renewal leasing. “Industry accords no immediate impact on commercial leasing in the wake of the startup sector hitting a roadblock, as major startups either operate in flexible space models or the work-from-home framework,” he said.
Ramesh Nair, CEO, India, and MD, market development, Asia, at Colliers, said: “While occupiers are going in for a hybrid work model, the need for offices remains paramount as a place for collaboration, ideation and a sense of belongingness. This reflects well in the office demand seen during the first half of the year.”
Office gross absorption across the top six cities saw almost a threefold rise to 14.7 million sq ft during Q2 2022 compared with the same period last year. The strong streak seen at the beginning of the year continued unabated in the second quarter, rising 14% quarter-on-quarter. Pan-India absorption has already surpassed 27 million sq ft in the first half of the year, signalling a strong revival in occupier demand, Nair added.
Nair said while many startups in certain sectors are downsizing, several other tech-enabled startups are growing. “Startups with the right product/service mix and value offerings continue to expand and grow,” he said.
Nair added that funding for startups has slowed since May this year and hence, there is a slight slowdown in enquiries for offices from startups currently. “However, over the next few quarters, we expect unicorns and companies with strong corporate governance to continue to grow and seek quality office space,” he said.
Prashant Thakur, head of research at Anarock Property Consultants, said that startups are restructuring costs to optimise their operations which may impact the office leasing momentarily. “However, strong economic recovery and deals from large corporates are likely to cover the loss in office leasing from these startups. Also, not to forget – startups are known for firing and hiring, and so their space requirements will rise once the current situation is under control,” he said.
