Covid-19 lockdown: Tenants seek waiver of lock-in periods; owners wary

Ashok Kumar, who runs a real estate consultancy called Gennex Partners, says he has been asking landlords for a rent-free period on behalf of his clients in different cities. Kumar also adds that some of his clients have terminated lease agreements as lockdown prolonged, reducing business and revenues sharply.

“Over the next few months, leasing is expected to be mainly driven by renewals, early terminations and consolidation activity, depending upon the need of respective industries,” says Kumar. In FY21, annual rent of Rs 6,000 crore is expiring and 60 per cent of this is in Bengaluru and Mumbai, according to real estate analytics firm Propstack.

Kumar said fresh take up of spaces is likely to be limited, as occupiers have gone into wait-or-hold mode. “Tenants have started renegotiating their lease contracts for lower rents. They have sought an extension of rent-free period as well as waiver of lock-in periods. They are seeking tangible concessions,” he said.

 

Tenants typically take space for lease for five to 15 years with a lock-in ranging from three to five years, implying they can’t vacate before three years. Ramesh Nair, chief executive officer (CEO) at property consultancy JLL, said it was expected that tenants would request for a longer rent-free period from the landlord due to lockdown challenges.”

“Most tenants are expected to negotiate for lower rentals only at the time of renewals, given that tenants are obligated to pay contracted rentals,” Nair said. Landlords will face challenges during lease expiries and renewals, he added.

While 2019 saw a record office absorption of 42 million square feet in top cities, this year, it is expected to come down to 30 million sq ft and additional leasing is expected to come down sharply. Seven of the 10 request for proposals (RFPs) of space for approximately a million and a half square feet have been put on hold in different cities, thanks to the pandemic, according to PropEquity, a real estate data analytics firm.

Anshul Jain, country head and managing director of Cushman & Wakefield, said tenants could ask for fit-outs of their offices to be done by landlords in the coming days.

“We have seen this trend after the global financial crisis in 2008. That might come back,” he said. However, large office developers said there is no question of reducing rent. “They (tenants) are asking for the sake of asking (for reduction in rents). We have told them no,” said Raj Menda, chairman at Bengaluru-based RMZ Corp, one of the largest office developers in South India.

Menda said if the buildings are good and vacancy in the area is low, it is unlikely that developers will agree for waiver of lock-ins, reduction of rents or extension of rent-free periods.

 

Bengaluru had a vacancy of 4.8 per cent in 2019, according to consultancy firm Knight Frank India. Vinod Rohira, managing director (MD) and CEO, commercial business, at Mumbai-based K Raheja Corp, which owns Mindspace and Inorbit Malls, said average rents for technology spaces in most markets are well below a dollar per square feet and that’s not being looked at to negotiate or reduce. “In fact, clients will want to choose or continue to operate out of Grade A business parks where there is intensive protocol and safety,” Rohira said.

Another Bengaluru-based developer Brigade Group has seen demand for higher rent-free period equivalent to the lockdown from tenants.

“We haven’t received any request for lock-in waiver. However, there are few requests for rental relaxation,” said Subrata K C Sharma, chief operating officer, commercial, Brigade Enterprises.