Source : https://www.moneycontrol.com/news/business/commercial-realty-market-likely-to-touch-32-million-sq-ft-in-2022-if-omicron-impact-is-mild-7869611
The first quarter of 2021 saw office occupiers adopting a cautious approach while reviewing commercial real estate requirements. With increasing fears of a resurgence in the Covid-19 pandemic in the second half of March, certain occupiers went into wait-and-watch mode. The leasing momentum subsequently picked up after the second wave.
A report by Knight Frank India said that the total number of office transactions in the eight India markets in Q3 2021 reached 83 percent of the 2019 quarterly average level. Among the larger markets, Chennai, Bengaluru, and the National Capital Region (NCR) recorded the highest recovery in the third quarter of 2021, with transactions reaching the 123 percent, 112 percent and 93 percent levels, respectively, of the quarterly average in 2019.
The Information Technology sector was the largest consumer of space during the quarter and took up 34 percent of the space transacted. The heightened transaction activity from this sector is an extremely encouraging driver for office demand as it is the most prolific occupier category in the office market. Occupiers also took up nearly 23,500 co-working seats across the eight markets during the quarter, the highest this year, the report said.
According to JLL’s Office Market Update Q3, 2021, the mass vaccination drive and unlocking of the economy has aided in the revival of the office market.
The net absorption in Q3 2021 surpassed the net absorption recorded in Q1 2021 by 12 percent, painting a clear picture of improved market sentiments and growing confidence among occupiers, the report said.
The Bengaluru, Delhi-NCR and Hyderabad markets accounted for nearly 60 percent of the net absorption during the quarter. Net absorption includes fresh leasing in completed buildings and pre-commitments in buildings that become operational during the time being reviewed, and excludes exits/terminations, churns, renewals, and pre-commitments in future supply.
Mirroring 2021
Experts say that while 2022 is expected to sustain the gradual recovery, it will be far from the levels in 2019 as the requirements from occupiers will be judicious and calibrated. Co-working is expected to thrive owing to the flexibility it offers in these times of uncertainty.
The experts say that while it is still too early to predict the impact of the Omicron variant on the commercial market, it is likely that 2022 will be similar to 2021. The demand for managed office spaces and players will continue to remain strong in 2022 as well.
An analysis by ICICI Securities has said that pan-India net absorption of 18.5 msf (million square feet) is expected in CY21 (11.5 msf achieved in 9MCY21) and there may be a recovery in CY22E with net absorption of 26.8 msf. The key risk is a significant delay in return-to-office plans of corporates owing to any fresh Covid wave.
According to Samantak Das, chief economist and head of research, JLL India, the net absorption in 2021 is likely to be more than 25 msf and this is a number comparable to the average of 2020, which saw commercial real estate bear the brunt of the first wave of the pandemic. The average for the last five years except last year was around 32 msf of net absorption.
“There is a likelihood of the commercial market touching the 32 msf figure in 2022 provided the impact of the Omicron variant on the economy and the real estate sector is milder than the second wave,” he adds.
Factors that will weigh in
The hybrid model, work from home, work near home and work from anywhere will prevail in the medium term, especially for those sectors that can be managed by a hybrid model. The impact on REITs, too, is likely to be marginal as some sectors such as health and insurance may grow faster overall, reducing the impact on total net leasing. Since quality assets are important for REITs, there is expected to be traction in terms of green buildings. Also, many more buildings may get upgraded in the coming quarters.
Upgradation is expected to take place in case of both Grade A and Grade B buildings, Das said.
In terms of institutional funds flowing into real estate, 2021 may see anywhere between $3.8-4 billion. This is lower than the last couple of years during which more than $5 billion of investments were recorded annually.