COVID-19 Impact: Office space demand may see sharp fall in coming years

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May 4, 2020 1:10 AM

Demand for office space could fall sharply over the next two years as the economy remains in slow gear and more companies ask employees to work from home.

 

IT industry, indian IT industry, information technology, Care Ratings, coronaviruAnarock Property Consultants projects the space rented could fall by anywhere between 17 and 34% in 2020 which means about 28-35 million sq ft of space could go begging.

Demand for office space could fall sharply over the next two years as the economy remains in slow gear and more companies ask employees to work from home. What’s more, rentals too could see a dip, as businesses look to conserve cash. Foreign firms, especially US-based IT/ITeS companies, are among the biggest occupiers of office space with a share of almost 45%. Experts say their strategies would have a big bearing on the trend in rentals.

Anarock Property Consultants projects the space rented could fall by anywhere between 17 and 34% in 2020 which means about 28-35 million sq ft of space could go abegging. Before the outbreak of the pandemic, Anarock had estimated demand could be in the region of 42.3 msf, compared with about 40 msf in 2019.

Samantak Das, JLL India’s chief economist and head of research, told FE demand was high last year at a record 46.5 msf whereas the supply was 50.9 msf. “We don’t expect to see that kind of demand for another three years as per our understanding today,” Das said, adding transactions for office space will likely fall in 2020.

Knight Frank India’s national director (occupier services) Viral Desai pointed out that in 2008-09, at the time of the global financial crisis, the absorption fell by 34% in 2010 from around 32 msf in 2009 and bounced back to 30 msf in 2011.

“Around 70% of world’s working population has been at minimal business activity for the last 2 months. This may continue for another quarter at least so we expect a contraction of demand,” Desai said. Desai also pointed out vacancies are few and supply is limited till 2022. “Grade-A assets will be resilient to corrections in rents at least for the April–June period. “Tenants may re-negotiate terms but a significant drop in rentals is unlikely, given possible delays in construction,” Desai said.

JLL’s Das observed that while landlords may not be under too much pressure yet to lower rents, businesses are trying to recalibrate their cash flows and could re-negotiate the terms asking for a three-month holiday or a revenue-sharing model.

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