Companies bargaining for rental discount, serving termination notices–The Economic Times

Clipped from: https://economictimes.indiatimes.com

COVID-19: Companies bargaining for rental discount, serving termination notices

Many firms are looking to cut down on their rental costs after implementing work from home policies. Most of the firms have said that half of their executives will continue to work from home, directly impacting their need for office space.

NEW DELHI: Many multinational companies occupying premium office spaces in Gurgaon are aggressively bargaining for discounts and some have even served termination notices to the landlords after high rentals have become unsustainable due to the Covid-19 disruption.

According to the people in the know several firms including Deloitte and PwC are set to surrender a portion of the space they occupied in DLF Cyber City and a few travel companies have already served termination notices.

According to the real estate consultants active in the region overall 1.5 million square feet space has been freed due to termination notices served by the companies in the last two months.

Majority of companies looking to move were in DLF Cyber City and Cyber Park.

DLF management has said, tenant exodus is in line with normal attrition rates.

“In any large and mature portfolio there would be terminations as tenant partners continue to review their occupancies and could be consolidating,” said Sriram Khattar, MD Rental Business, DLF, which is the biggest office space operator in the region having 19 million square feet.

“Such termination notices would be about 4% to 6% of our about 19 million portfolio in Gurgaon at any point in time. Covid-19 has not had impact on the big picture with this percentage being broadly in that range,” he added.

Consultants say some operators have even waived of 40% rentals for the year.

“Companies are making good use of the situation and bargaining for less rental for the year, in an attempt to save money,” said Kshitij Nagpal, a real estate consultant and president, Association of Property Professionals (APP), Delhi-NCR.

Another international property consultant told ET that in some areas of Gurgaon, companies are giving upto 35-40% discount to retain tenants.

“While operators are not admitting that they have given discounts fearing everyone will ask for it, sooner or later, they will have to offer discounts to keep the business running. In Cyber City, where the rentals are Rs 130 per square feet, companies are bargaining hard and threatening to serve termination notices. One company brought down the rental to Rs 40 per square feet from Rs 72 by threatening to quit a commercial tower in Gurgaon,” said the consultant requesting anonymity.

Many firms are looking to cut down on their rental costs after implementing work from home policies. Most of the firms have said that half of their executives will continue to work from home, directly impacting their need for office space.

Deloitte, PwC, KPMG, EY, Accenture and Cognizant are already analysing their real estate strategy and in many cases even surrendering office spaces to look at ways to substantially reduce high rental costs.

Many firms claim that extensive use of technology means that most of the employees are not required to come to office.

“We will continue to drive our real estate strategy in alignment with the investments made in technology, as the concept of the workplace gets redefined in this changing environment,” said Padmaja Alagandan, Chief People Officer, PwC India.

Consultants now say that rentals are likely to reach 2018 levels.

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