2020 was definitely a dull year for the Indian commercial office markets, but the supply and demand picked up in 2021 with 21% and 34% growth, respectively, over the previous year. Last year, ie. 2022, was also upbeat during the first half. However, from the second half onwards, the pall of a threatening recession in the US caused many RFPs (Request for Proposals) to be deferred as the large global corporates wanted a better perspective on the future before leasing new offices. By the end of the 3rd quarter of his year, the number of Grade A office leases across the top 7 cities was down by 6–10% over 2021. And the last quarter of 2022 has been marked by increasing caution and reticence by MNC occupiers.
According to ANAROCK, a recession in the US could further impact commercial real estate absorption in 2023, which was already showing signs of slowing down in India due to negative global cues in 2022. That said, major occupiers have expressed their confidence in the Indian office sector. The average lease term for deals concluded in 9M 2022 is 3 months higher than in 2021.
“Evidently, occupiers are taking long positions. Average rentals for concluded deals have risen 7-10% in the first nine months of 2022 compared to the previous year. We will need to wait and watch how the situation pans out overall, but the continued confidence of major MNC office space occupiers does seem to indicate that any pain in office space leasing in 2023 would be short-lived. India’s demographic dividends and other undeniable advantages continue to bode well over the long term,” said Anuj Puri, Chairman, ANAROCK Group.
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Some realty consultants, however, seem quite bullish on the growth prospects of commercial real estate in 2023 as well.
For instance, Gagan Randev, Executive Director, India Sotheby’s International, said, “The outlook for office remains strong in 2023. We expect a very strong rebound in Grade A spaces and the vacancy rates in these office parks should continue to reduce while Grade B spaces would find it more challenging. The Bangalore, NCR, Mumbai and Pune markets continue to look strong from a rental growth perspective. Hyderabad is the only market which might see a pricing challenge given its enormous supply coming in the next few years. Co-working and Enterprise solution office space would continue their growth trajectory as Flexi and managed spaces remain the preferred option for quite a few clients. The big commercial developers are constantly enhancing building specs and efficiency as they look to ensure that they are able to continue to demand the rentals that Grade A offices command.”
So far as retail is concerned, that again seems to be set for its strong performance and rentals are likely to show their upward trajectory.
“India is expected to see 16 new malls opening in Tier 1 and 2 cities in 2023 and a similar number in 2024 and it is a clear expectation of participants that E-Commerce and Physical shopping will co-exist. In fact, post Covid the urge to go to the Malls and open format Retail spaces will continue to grow, as is amply evident now. Fully-owned malls will continue to see upgrades to enhance their attractiveness and Owners are once again exploring ways to utilise any additional FSI for expansion. There will be an explosive growth of Retail in the open Shopping complex format in Tier A city outskirts and Tier B cities,” added Randev.
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Rishi Raj, COO, Max Estates Ltd, said, “2022 has been an exhilarating year for real estate and Max Estates also. The real estate industry as a whole has witnessed a visible shift in preference from just ‘location, location and location’ to now ‘location, product and experience’ as the three key success metrics for real estate developments. Post the pandemic, as offices moved beyond the conventional idea of a standard brick and mortar buildings to new, modern, and sustainable ecosystems, we witnessed a trend of flight to quality with established organisations choosing Grade A+ developments as their preferred office spaces. As a Grade A+ office space player, we witnessed a surge in occupancy and demand.”
“We have now announced the expansion of our CRE footprint to Gurugram, cementing our presence in all major regions of the National Capital Region. In addition, we have won the bid for 2 land parcels of ~4 acres on the Noida-Greater Noida expressway. This, combined with our assets under development – Max Square and Max House Phase 2 — will help us increase our portfolio to ~4.5mn sq. Ft,” he added.