SynopsisThe expected pattern of lease renewals and expiries in smaller size offices this year is likely to result in occupiers and tenants considering more flexible and co-working spaces.
Small and mid-sized office spaces across India will likely face a major test of occupancy and yields this year as lease agreements pertaining to annual rentals worth Rs 6,800 crore are due for renewal in 2021.
The sensitivity of rental yields to these upcoming renewals will set the tone for businesses amid potential demand shrinkage in the aftermath of the pandemic and adoption of the work-from-home model by many businesses.
Of the total expected renewals, 65% are for offices measuring less than 10,000 sq ft. More than 1 lakh sq ft contributes 25% of these rentals, showed data from real estate data platform Propstack.
Mumbai leads the number of leases that are expected to expire this year, while Bangalore tops the area of these office leases due for renewal. In Delhi-NCR, a total of 958 leases will expire this year and that forms nearly 20% of the total agreements that are due for renewals.
“Considering that many corporates have adjusted to work from home, we believe that 2021 will be a year of reckoning for corporate real estate in India. Mumbai has the highest rent per sq ft while area absorption is the highest in Bangalore,” said Raja Seetharaman, director at Propstack. “With India recording one of the highest work-from-home productivities, both cities will be tested.”
According to him, corporate real estate will continue to evolve and every company will find a balance by deploying a hybrid model combining regular office and work-from-home options.
The expected pattern of lease renewals and expiries in smaller size offices this year is likely to result in occupiers and tenants considering more flexible and co-working spaces.
“Chances are high that the smaller and mid-sized businesses would opt for professionally managed and easy budget co-working and flexible offices in the backdrop of Covid-19 pandemic-led cost optimisation exercises among these companies,” said Naveen Nandwani, MD, Commercial Advisory & Transactions, Savills India. “The demand for flexible workspace options is already gaining traction and we are seeing acceptance of the concept among large enterprises.”
Nandwani is also heading Workthere, the firm’s recently started coworking listing platform in India.
Offices up to 50,000 sq ft account for 75% of the renewals. Leases with more than 1 lakh sq ft office space account for 3% in total number but 25% of rentals, the data showed.
As organisations reassess their overall office space requirements and look for workplaceflexibility in the wake of the pandemic, activity in the co-working offices segment is likely to gather further momentum.
According to a recent study, leasing by co-working operators is expected to increase 42% on-year in 2021 to 4.9 million sq ft with shared offices likely to gain greater significance in the post-Covid world.
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