Commercial real estate picks up momentum in top cities driven by IT/ITeS sectors

By: |
March 28, 2021 5:34 PM

Commercial leasing activities have picked up momentum in the ongoing quarter and even before, though they are yet to return to the pre-COVID-19 levels.

As per the JLL India data, in Bengaluru, prominent office market, the net leasing dropped to 2.2 million sq ft in January March 2021, from 2.7 million sq ft in the same period last year.As per the JLL India data, in Bengaluru, prominent office market, the net leasing dropped to 2.2 million sq ft in January March 2021, from 2.7 million sq ft in the same period last year.

With rising residential sales, commercial real estate has also started showing sings of revival, which is definitely good news for the realty sector.

According to a JLL India report, once the unlocking process was initiated in the third quarter of 2020, both the residential and office markets started showing promising signs of revival. As business activities resumed with the gradual opening of the economy in the third quarter of 2020, the office market witnessed green shoots of recovery. Sentiments improved further in the last quarter of 2020 with the news of potential vaccine development, and the office market continued its recovery momentum. Net absorption increased by 52%, while new completions grew by 39% when compared to the preceding quarter.

Industry experts say that commercial leasing activities have picked up momentum in the ongoing quarter and even before, though they are yet to return to the pre-COVID-19 levels. The fact remains that many IT/ITeS companies have extended the WFH (work from home) option for their employees (many up to June 2021) and are carefully gauging the situation.

“We all know that the IT/ITeS sectors are the prime drivers of overall leasing activity in the top cities. While many of the large companies did renew their office leases last year despite rising COVID-19 cases, there were others (such as start-ups) who went on to cancel theirs. With rising cases and the anticipation of another lockdown in some of the top cities, commercial leasing activity may walk the tightrope for a while longer. There is likely to be subdued demand in the near future, or at least until COVID-19 cases begin to subside in more significant numbers,” says Anuj Puri, Chairman, ANAROCK Property Consultants.

While the vaccination drive across countries and in India is gathering pace, the current second wave and the possibility of a third wave in different countries are also a cause of concern.

In fact, many European countries have again gone into complete lockdown, which may have some adverse impact on commercial leasing in India. Business travel across the globe has still not resumed and is unlikely to in the near future. All these factors do not bode too well for overall leasing in the short term.

“Individually, the rising Covid cases in top cities like MMR and Bengaluru – the markets with highest commercial demand – followed by the possibility of another lockdown will dampen commercial leasing activities. That said, the overall commercial real estate story remains robust in India. We are witnessing a once-in-a-century phenomenon, which is nevertheless a temporary one. All commercial markets in the affected countries came back very strongly after the last pandemic in 1921,” informs Puri.

Developers are also of the view that real estate retail leasing has seen an uptick in the last few months.

“The April-September 2020 period saw an exodus of brands from malls across India and drove down the rentals. However, an increase in consumer spending witnessed during the festive season has sustained itself, thereby leading to renewed optimism from both shoppers and retailers. Brands have begun to return to those malls/high streets that have the potential to attract footfall. The lack of quality malls in Faridabad, for instance, saw shoppers veering towards Omaxe World Street – a themed high-street destination with plenty of open spaces. This high-street destination has seen increased footfall and retailers’ attention in the past few months with daily footfall averaging 10,000 since December and more than 20 brands opening their stores,” says Benu Sehgal, President-Retail, Omaxe Ltd.

The pandemic-induced lockdown and the resultant WFH did hit the real estate leasing market badly. However, in 2021 real estate leasing market is coming back with a bang.

Gurpreet S Ratra, Executive Director, T and T Realty Sevices, says, “Rentals have corrected by 15-20% in NCR. Developers are offering custom-made solutions and tempting offers to the prospect tenants like complete furnished premises and telescopic rents. Corporate houses are capitalising the opportunity and relocating in bigger space by paying almost the same rentals. Economy recovery looks brighter. The Sensex has crossed the 50,000 mark and GST collections show upward signals. February 2021 GST revenues are 7% higher than the GST revenues in the same month last year. As per recent reports, exports from SEZs reached Rs 7.96 lakh crore (US$ 113.0 billion) in FY20 and grew ~13.6% from Rs 7.1 lakh crore (US$ 100.3 billion) in FY19. Such figures are boosting the confidence of corporate houses to roll out their expansion plans.”

Mukul Bansal, Director, Motia Group, says, “India’s commercial real estate segment is looking strong in 2021. In recent months, the Tri-city region has witnessed transactions by big companies which have boosted the market sentiments. In a post-pandemic phase, emerging new trends including a sanitized ambience amalgamated with wellness facilities to ensure hygiene and safety will become the foremost priority of developers and occupiers. Today, technology has taken the centre-stage in the realty business and has transformed business strategies. These trends are likely to stay here for a longer time as more and more players will look forward to adopting technology-driven methods for sanitization and hygiene-related concerns in office spaces.”

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