Developers likely to face tough time in office leasing, says study

About 90 million square feet of lease renewals coming up this year, says a report by Anarock

Property developers could face serious challenges in leasing out office properties in the remaining part of this calendar year.
 
This is because over 7,400 leases of around 90 million square feet area will come up for renewal in 2021 across the top six commercial hubs in the country.
 
These cities are Bengaluru, Mumbai, Pune, Chennai, Gurugram and Noida.
 
The year 2021 has seen the highest lease expiry pipeline when compared to 2022 and 2023.
 
The year 2022 will see nearly 7,000 leases for about 78 million square feet come up for renewal and around 4,200 leases for over 55 million square feet will await renewal in 2023, said Anarock Property Consultants in a report.
 
“Office demand is also expected to gather momentum from 2022 in the wake of robust hiring by large corporates. These big corporates will definitely renew their leases, though some of the smaller companies may consider rationalising space,” said Prashant Thakur, director & head — research, Anarock Property Consultants.
 
Of the total 7,400 leases expiring in 2021, Mumbai has the highest share at about 44 per cent, followed by Pune with a 17 per cent share. These two cities have been among the worst-affected by the second wave of Covid.

 
Developers agree that there will be challenges ahead.
 
"Obviously, there is a challenge as nobody is working from the office now. Tenants may terminate leases that are coming to an end and rework later. I feel 2021 will be a difficult year and 2022 will be fine as the economy picks up,” said Niranjan Hiranandani, managing director (MD) of Hiranandani Communities, one of the largest developers in the country.
 
Amit Goenka, MD at fund manager Nisus Finance said leasing activity has dropped over 40 per cent in terms of lead conversion over the last two months. With continued lockdown and threat of a third wave, companies are bracing for work from home and through flex spaces like co-working, said Goenka.
 
“Renewals may happen but for smaller footprints, since companies need to maintain their office premises and registered addresses, having spent significant amounts on fit-outs. However, total renewals may shrink by 30-40 per cent and that too at rentals that are 5-10 per cent lower than before,” he added.
 
However, Sanjay Dutt, MD of Tata Realty & Infrastructure said the second wave of Covid would have a marginal impact on leasing offices.
 
“IT companies in IT special economic zones (SEZs) are keen to take tax benefits. They will renew their leases. Non-IT SEZ companies may want to still renew leases because nobody wants to move out and spend Rs 2,000-Rs 4,000 per square feet as capex during the pandemic,” said Dutt.
 
Dutt added that medium-sized companies under pressure may want some discount on future rental escalations. This, depending on quality of the property and demand & supply dynamics, may or may not happen.
 
Juggy Marwaha, chief executive officer (CEO), Prestige Office Ventures, said the current lull is a temporary blip and would last for one quarter. “The office property story in the country is intact,” he added.