NEWS

Office space demand recovery gets broad-based as small, mid-sized deals pick up

Aug 20, 2022

Listed Real Estate Investment Trusts (REITS) and realty developers with sizable office real estate portfolios have started witnessing increase in transactions for 10,000 sq ft to 50,000 sq ft and even boutique offices in addition to large transactions getting concluded.

The recovery in commercial real estate, especially office spaces, after the Covid-19 pandemic is getting broad-based as indicated by the rising number of small and mid-size leases and outright transactions across segments and key property markets.

Listed Real Estate Investment Trusts (REITS) and realty developers with sizable office real estate portfolios have started witnessing increase in transactions for 10,000 sq ft to 50,000 sq ft and even boutique offices in addition to large transactions getting concluded.

“While overall gross leasing volume across top eight cities has increased 71% on-year in the first half of 2022, the mid-sized transactions with size of 20,000 to 35,000 sq ft has seen a significant 104% rise. The demand recovery initially driven by the large occupiers is now seeing a much broad-based momentum across segments especially mid-sized categories,” said Gautam Saraf, MD-Mumbai and New Business at Cushman & Wakefield.

Interestingly, the demand for these office spaces in established grade A commercial parks is fuelled by multinational companies setting up Global Capability Centers (GCC) in India.

These companies are in the process of creating their initial set up here for conversational artificial intelligence, cyber security, machine learning, natural language processing, healthcare technologies, research & development and blockchain.

“As a strategy, we continue to partner with high-growth occupiers with the potential to rapidly scale their operations in India. Interestingly, in addition to new global captives opening their first offices in India, we are now seeing a trend of existing global captives expand their presence in India by setting up new research and development centres, ranging from the semiconductor industry to electric vehicles to SaaS and related product development,” said Vikaash Khdloya, CEO, Embassy REIT.

During the quarter ended June, Embassy Office Parks REIT has inked 15 such deals with average deal size of 25,000 sq ft, taking the total addition of new growth occupiers to 33 over the last 15 months. Mindspace Business Parks REIT has leased nearly 1 million sq ft of office space through 18 transactions, while Brookfield India REIT signed 8 deals totalling 3.11 lakh sq ft.

According to Khdloya, while the initial take up may be between 25,000-50,000 sq ft, these occupiers are likely to exponentially expand their footprint within the business parks in the short to medium term. This augurs well for Indian commercial real estate, and given the quality of talent pool in India, he expects this trend to continue, as the REIT has seen within its portfolio.

Apart from the rise in demand for GCC set ups, the transactions are also witnessing growth given the increase in expansion by existing tenants at these office parks.

“At Brookfield India REIT, we continue to demonstrate strong operating and financial performance backed by a 6% increase in our organic growth from the previous quarter. Our gross leasing remained positive at 3.11 lakh sq ft in June quarter with robust leasing demand from new clients coupled with an increase in leasing momentum from existing tenants as they drew up their expansion plans and encouraged their workforce to return to offices,” said Alok Aggarwal, CEO, Brookprop Management Services.

In the first quarter of 2022, about 70% of US-headquartered multinational companies established their GCCs in India, showed NASSCOM’s India GCC Trends 2022 analysis. The GCC market is estimated to be worth $35.9 billion in 2021-22 and is projected to grow with a CAGR of 11.7%. Indian GCCs are adding value to global parent companies and India is set to become a leader in this domain.

The number of GCCs in India are set to surpass over 1,900 by 2025 from over 1,400 in 2020-21. The headcount in GCCs is also set to touch 2 million by 2025 from 1.4 million in 2020-21 led by abundance of talent, presence of a vibrant tech ecosystem, and government policy support.

Source: realty.economictimes.indiatimes.com

Office space demand recovery gets broad-based as small, mid-sized deals pick up

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