Work from home culture may mute demand for office space: Ind-Ra study

A double-digit growth in India’s GDP in FY22 is likely to improve year-on-year (YoY) rent collection for retail space providers
Demand for office space may not increase due to the "long-term impact" of people working from their homes in the coronavirus pandemic, said a report by India Ratings and Research (Ind-Ra) on Wednesday.

The report expected commercial real estate to show a stable performance in financial year 2021-22 (FY22). “Office space providers with mature, let-out portfolios are likely to see steady rent collections and few defaults on lease terms. The situation of retail space providers is gradually improving from a low base, and Ind-Ra expects normalisation of the business over the next 12 months.”

A double-digit growth in India’s GDP in FY22 is likely to improve year-on-year (YoY) rent collection for retail space providers. “The economic recovery is likely to help office space providers as well, however, we remain concerned about the long-term impact of increased adoption of the work-from-home culture on office space demand,” said the agency.

Some return to work from office is likely to gain momentum as the vaccination programme advances over 2021 but with flexible working options prevalent in workplaces over the past 12 months, it can be a long-term threat to office absorptions.

Information Technology companies, which account for about 40 per cent of office lessees in India, have started adopting innovative hybrid working options, focusing on reducing floor space apart from permanent work from home.

Ind-Ra expects net new absorptions in FY22 and FY23 to be around 40 per cent below the average level seen in FY19 and FY20. This is likely to result in an overall increase in vacancies to 19.3 per cent by March 2023 from 14.7 per cent in December 2020. Rising vacancies could also result in a somewhat difficult environment to lease out new under construction office properties.

While the agency has seen a few instances of office lessees cancelling their leases, lessees are still evaluating their long-term work-from-office policies. “As office lessees have to incur substantial upfront fit out costs while moving into new premises, they are likely to be extremely cautious before cancelling any leases. Consequently, Ind-Ra does not expect mass-scale lease cancellations over FY22,” stated the report. 

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel