Leading global and domestic technology companies have renewed their office leases, providing a much-needed fillip to the battered commercial real estate sector, even as they experiment with the work-from-home model.
Accenture, Oracle, IBM, Tech Mahindra, Tata Consulting Services, Microsoft and Capgemini are among such companies that have renewed their large office lease agreements over the past two months. The lease renewals cover over 3.5 million square feet of office space in Bengaluru, Hyderabad, Pune and Mumbai.
“Based on the leasing momentum, we believe that most corporates continue to be neutral or bullish about the long term. It appears that many corporates may be balancing their space requirements by transacting space to cover their worst-case scenario while retaining the flexibility to add additional space in case of a robust recovery,” said Raja Seetharaman, cofounder at Propstack, a real estate data and analytics company.
Most companies have renewed their leases for nine years, indicating that India still offers compelling reasons such as cost arbitrage and high-quality talent for multinational corporations to set up offices in the country.
“Occupiers are in the process of figuring out their own respective work-from-home strategies for the mid long term. However, that has not stopped many large tenants from going ahead to renew existing leases and commit to new space for consolidation/expansion needs in the major micro-markets across key cities,” said Vinamra Srivastava, CEO, business parks at CapitaLand India, an asset management company.
About 17 million sq. ft. worth of office deals have been concluded in India so far this year and that figure may rise to 20 million sq. ft. by the end of 2020. Experts consider this a good number, although it is lower than the 30-35 million sq. ft. concluded annually.
“Given the current uncertainties, companies do not want to invest in capex. Companies are looking at short-term renewals than medium-term expansion,” said Ramesh Nair, country head of JLL India.
There has been no supply of Grade A office space since March and it will take another six months to get new office space in the top markets. So large companies are keeping the space they already have even as they have work-from-home policies in place.
Since new supply is delayed or postponed due to Covid-19, companies including Google, Accenture, Microsoft, Morgan Stanley, Standard Chartered Bank and Walmart have concluded large office space transactions across Indian cities.
“We continue to see tremendous resilience in terms of occupier retention and re-leasing across our portfolio. Occupiers are looking at quality spaces with an increased focus on the health and safety of employees, in line with global best practices. Renewals from large occupiers and end-of-tenure releasing have been steady,” said Vikaash Khdloya, deputy CEO of Embassy REIT, which has 26 million sq. ft. of operational office space in the country.
However, given the disruptive impact of Covid-19 on the global and local economy, commercial space deals in India are likely to take a hit this year, after scaling a record of over 45 million sq. ft. last year.