Demand for office space may drop 25-30%

With almost 90% of the IT companies, the key demand drivers of the office sector, working remotely, the demand for office space is set to drop 25-30% in Bengaluru during the current year.

In 2019-20, India's technology hub Bengaluru witnessed absorption of 14 million sq. feet of office space, a drop of 3.4% over 2018. However, during the current year, the absorption is set to see a sharp decline on account of the Covid-19 crisis and the uncertainty regarding the time required to return to normalcy.

"The magnitude of the outbreak in the US and the other European countries has been significant and as a large number of MNCs that drive office demand in India are headquartered in these countries, office demand is expected to be adversely affected. Majority of these companies are expected to hold back their expansion plans owing to the pandemic, opting for remote working to carry on their operations - thereby leading to reduced office space demand," Shrinivas Rao, CEO-APAC, Vestian Global Workplace Services told DH.

Given that IT/ITeS sector is the key office space demand driver in most of the office markets across the country, it is estimated that 65-80% of the decline in demand would be accounted for by the sector. Almost all industries would contribute to the decline in demand as the impact of the Covid-19 crisis has been all-pervasive, Rao said adding that the time required to return to normalcy also cannot be predicted.

According to him, 25-30% constriction in gross office space absorption is expected all across the country. This means, the drop in gross office space absorption will be between 14.5 million sq. feet and 17.5 million sq. feet during the year 2020 compared to 2019. Thus, gross absorption in 2020 is expected to be in the range of approximately 41-44 million sq. feet. However, Bengaluru will still fare better than other metros in terms of absorption of office space. It is expected to be followed by Hyderabad, Mumbai and NCR.

The office market has been steadily accounting for the maximum amount of real estate investment as well, surpassing the investment in the residential sector. Factors such as development of Grade A commercial space and fairly reasonable rentals, coupled with low vacancy levels, have led the commercial segment to emerge as the investors’ favourite asset class in recent times. During the period between FY2018 and FY2020, investment in the commercial segment totalled to $6.93 billion, accounting for a whopping 72% of the total investment in that period.