NEW DELHI: Net leasing of commercial office space in India will stagnate this fiscal at 32-34 million sq ft, with global uncertainties brewing caution among key tenant categories, according to Crisil Ratings.
That said, the inherent strengths of the Indian market and increasing shift to return to office should help demand pick up over the medium term, keeping credit profiles of office asset owners stable.
Information technology (IT) and IT-enabled services (ITeS) companies occupy 42-45% of the operational stock. Global capability centres (GCCs) of multinational corporations have also emerged as a key category of tenants in the past few years, occupying around a third of the total stock. These two determinants will keep demand modest in the near term amid global economic headwinds, according to Crisil.
Gautam Shahi, director of the company said, “Net leasing of office space will be impacted by two factors this fiscal. One, headcount addition in the Indian IT/ITeS sector has already come to a halt amid tapering revenue growth and pressure on profitability. Plus, the sector may look to control costs, including rent. Two, GCCs may defer large-scale leasing plans in India amid weak macroeconomic outlook in key regions such as the US and Europe.”
On the other hand, demand from the domestic enterprises in the banking, financial services and insurance (BFSI), consulting, engineering, pharmaceuticals, and e-commerce segments, which occupy the remainder of India’s office area, will remain buoyant, resulting in net leasing of 32-34 million sq ft this fiscal, same as that in fiscal 2023.
Saina Kathawala, associate director of the company said, “Notwithstanding the near-term hiccups, net leasing is expected to grow 10-12% next fiscal to 36-38 million sq ft. GCCs are expected to drive office demand, given cost advantages of the Indian market vis-à-vis other developing markets as well as the availability of a skilled talent pool. Additionally, demand from domestic enterprises will remain healthy backed by strong financial health and good growth prospects.”
Employers pushing for increased physical occupancy in offices may prove to be another tailwind for office leasing. Most companies — including those in technology, which otherwise were favouring work-from-home — are now pushing for return to office on most days of the week. Physical occupancy, which averaged 40% last fiscal, is expected at 65-70% this fiscal.
