Office space rentals likely to stay stable for 12 months

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May 13, 2021 1:45 AM

Knight Frank forecasts that the decline in rents to decelerate this year, with overall rents expected to decline by 3% in the APAC region, compared to the 4.8% decline seen in 2020.

Given the strong fundamentals of India office market, despite the near-term uncertainty, occupiers will positively react to any improvement in the pandemic scenario in the country”.Given the strong fundamentals of India office market, despite the near-term uncertainty, occupiers will positively react to any improvement in the pandemic scenario in the country”.

Rentals in India’s prime office markets — Bengaluru, NCR and Mumbai markets are expected to remain stable over the next 12-months.

Knight Frank in its latest report Asia-Pacific prime office rental index for the first quarter of 2021 cited that despite there being uncertainty around the performance of India’s office sector, Bengaluru, NCR and Mumbai markets are expected to remain stable.

According to the report, Bandra Kurla Complex (BKC) in Mumbai witnessed a recovery in office rents, which were down 0.8% sequentially during the January – March 2021 quarter, compared to a decline of 5.5% in the previous quarter. This robust recovery can be attributed to improved transaction activity in the Q12021 period.

Central Business District (CBD) of Bengaluru, comprising areas such as MG Road, Infantry Road, and Residency Road, has registered a decline of 3% quarter-on-quarter (q-o-q) against a decline of 4% in the October-December period. The rents in office spaces at Connaught Place in Delhi remained flat compared to a fall of 1% in Q42020.

Knight Frank forecasts that the decline in rents to decelerate this year, with overall rents expected to decline by 3% in the APAC region, compared to the 4.8% decline seen in 2020.

Shishir Baijal, chairman and managing director, Knight Frank India said, “The second wave of pandemic and associated regional lockdowns have temporarily delayed occupiers’ office re-occupancy plans. However, control on infection case count with graded regional lockdowns and progress on vaccination drive will act as a market stabiliser in near future. Given the strong fundamentals of India office market, despite the near-term uncertainty, occupiers will positively react to any improvement in the pandemic scenario in the country”.

Meanwhile, another property consultant, ANAROCK Property Consultants said on Tuesday that the second wave in India is far more excruciating than the first, pushing some companies into a wait-and-watch mode again with their real estate decisions. In a sign that leasing activity is slowing down, the average vacancy levels in Grade A office space across the top seven cities has risen, breaching the 15% mark. Rising Covid-19 cases in cities like MMR and Bengaluru — the markets with the highest commercial demand – and stringent curfew restrictions are cause for concern.

The developers are expected to face a tough challenge leasing out office properties with over 7,400 leases spanning approximately 90 million square feet area coming up for renewal in 2021 across the top six commercial real estate hubs – Bengaluru, Mumbai, Pune, Chennai, Gurugram and Noida.
The year 2021 also has the highest lease expiry pipeline when compared to 2022 and 2023. The year 2022 will see nearly 7,000 leases for about 78 million sq. ft. come up for renewal, and around 4,200 leases for over 55 million sq ft in 2023.

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