City suburbs emerge most resilient office markets amid the pandemic
Whenever the economy experiences tectonic changes, the real estate markets are affected, but at a lag of 10-12 months. Corporate occupiers take that long to work and re-align their brick-and-mortar strategies based on how their business is shaping up.
Now that a year has passed since the pandemic hit India, it is the right time to check how commercial real estate markets have fared and which markets have remained resilient even as the economy contracted. To understand this better, Savills India evaluated some of the office markets (which houses over 10 million sft office space) across major cities on some critical criteria that included rental changes, absorption trends vis-à-vis supply, vacancy levels, and submarket size. The criteria were applied in stages to put together a list of the most resilient markets.
The markets that remained resilient during the economic slowdown:
In the last 12 months, many corporates have re-evaluated their real estate strategy with Work From Home (WFH) and Work From Anywhere (WFA) cultures taking precedence. Office real estate had never witnessed such a paradigm shift ever. But surprisingly, there were many pockets of Bengaluru, Chennai and Hyderabad where the rental change was either nil or rents had increased marginally. Several office locations in Mumbai and Pune also witnessed a marginal increase in rentals. Besides, new demand was higher than the fresh supply in these markets. So, while the real estate sector was in the gloom, demand and delivery of projects remained strong in some of the above locations.
Another important aspect is the vacancy level. Most of them had vacancy level less than 10%, a clear indication of the continuing robust office demand in such places.
Below is the final list of office space markets that have remained resilient in the last 12 to 18 months:
# Bengaluru: Its suburbs of Outer Ring Road (ORR) # Hyderabad: The city’s suburban locations Gachibowli, Nanakramguda and Manikonda # Mumbai: The Eastern suburbs along LBS Marg including Powai and Vikhroli # Pune: (1) The CBD of Camp, Bund Garden Road, Shivaji Nagar, Kalyani Nagar, Yerawada (2) The suburban Eastern District of Kharadi, Viman Nagar, Nagar Road, Hadapsar, Kodhwa
Some markets such as Gachibowli in Hyderabad and ORR in Bengaluru have been magnets for corporates for a long time. However, when you look at markets from Pune and Mumbai, there are some unexpected submarkets. Looking at the larger picture, it appears that most of the resilient markets are in the suburbs, where demand is primarily driven by the technology sector.
The trend also confirms that corporates are taking office spaces closer to where employees live. This will become a norm post pandemic as employers adopt agile workplace culture. The list of resilient markets provides developers and institutional landlords cues on where to expand their portfolios, and that they should look at business parks, tech parks and integrated townships to cater to the future of the workplace. These are the locations where people converge to live, work and play.
Lastly, the supply has to follow the demand, and it appears that if we want to have lower volatility in rentals, the Indian suburban markets are a better bet than the prime inner-city submarkets, especially during the economic slowdown.