Office realty leasing bounces back, may beat 2019 record

The office property leasing momentum continues to gain strength despite the acceptance of pandemic-driven work-from-home and hybrid options if actual leasing numbers as well as pre-leasing commitments are a criteria to go by. Experts say the 2022-end numbers may surpass even the peak achieved by commercial real estate in the record year 2019.

Unlike the concerns during the initial phase of the Covid-19 outbreak, there has been very limited or almost no downsizing by large corporations, also indicating the shift in occupier sentiment and greater certainty of business as the pandemic is now under control.

Lease transactions for large office spaces are being registered across key property markets, led by steady economic recovery, aggressive vaccination drives across the country and a rising number of corporates planning the return of their workforces to offices.


"Office property market is flourishing in a dispersed portfolio manner across metropolitan areas, peripheral suburbs, and tier cities,” said Niranjan Hiranandani, MD, Hiranandani Group, which recently leased over 450,000 sq ft across 18 floors in its commercial tower in Thane to IDFC First Bank for 10 years.

“The renewed demand from banking, financial services & insurance, healthcare, pharma research, and information technology are absorbing larger floor plates with long-term lease renewals,” said Hiranandani. “The market signals optimistic growth indicators for Indian commercial realty."

According to Knight Frank India, office leasing volume has surpassed 41 million sq ft, while data from JLL India shows net absorption stands at over 30 million sq ft for the first nine months of the year. In 2019, net absorption across India had scaled an all-time high of over 41 million sq ft, while transaction volume had risen to over 60 million sq ft.

"The office market’s robust performance so far has set the tone for 2022,” said Shishir Baijal, CMD, Knight Frank India. “Physical occupancy levels are rising as more companies want their employees to return to the office. Hiring across many sectors has picked up as India’s economic growth continues. With the current pace of leasing, we expect the year of 2022 to see leasing volumes close to the peak of 2019 and exceed it in the next year."

According to him, the focus amongst occupiers for this year will remain on flexibility, in leasing terms to allow real-time expansion and contractions, indicating a strong year for managed office spaces too.

"Commercial office lease activity reached a seven-quarter high in the September quarter,” said Boman Irani, president, CREDAI-MCHI. “The steady growth in office market volumes across key property markets over the past three quarters along with stable or growing rents is a clear indication of the increasing strength of the recovery."

The discussions around the uncertainty in global economic growth may impact the deal activity to a certain extent, but any slowdown in the US or Europe will help position India as an option for cost-constrained organisations, experts said.

In one of the largest office lease transactions, American multinational corporation Qualcomm has picked up over 1.8 million sq ft spread over an entire 20-storey commercial tower in realty developer K Raheja Corp’s information technology park in Hyderabad. Apart from global entities, Indian companies are also picking up large office spaces. Among Indian entities, Mahindra & Mahindra Financial Services and Avendus Capital leased 275,000 sq ft and 100,000 sq ft, respectively, in Bandra-Kurla Complex (BKC), while Pidilite Industries leased an entire 10-storey commercial tower in Mumbai’s Andheri suburb.

The IT and ITeS sectors are among the prime drivers of overall leasing activity in the top cities, and bulk hiring by these firms will influence the demand for large-quality office spaces.

Among the key cities, Bengaluru accounted for 45% of total leasing during the September quarter, at 7.3 million sq ft. The country’s commercial capital, Mumbai, recorded an 82% jump in leasing at 2.1 million sq ft.

Occupiers from the information technology sector accounted for 29% of the transacted space. The share of the co-working sector in total transactions increased to 23% from 6% a year ago, recording the maximum increase across all sectors. The sector continued to find the occupier’s favour and volumes transacted by this sector grew by 380% from a year ago.

While leasing volumes have grown, rentals have also stabilised or grown across all markets. Bengaluru and Pune office markets recorded maximum rental growth at 13% and 9%, respectively, owing to higher demand and a lack of grade A space. The rentals in Hyderabad, Chennai and Mumbai also witnessed a moderate increase, whereas the rentals in Ahmedabad, NCR and Kolkata remained stable.