Crisil Ratings predicts a slowdown in the demand growth for commercial office space globally during the current fiscal year. The uncertainty prevailing in the global market is fostering caution among major tenant categories, leading to an anticipated stagnation in net leasing at 32-34 million square feet in India.
Crisil acknowledges the resilience of the Indian market and a gradual return to office trends as factors that could stimulate demand over the medium term. Despite the near-term challenges, the credit profiles of office asset owners are expected to remain stable.
The IT and ITeS sector, constituting 42-45% of the operational stock, and Global Capability Centres (GCCs) of multinational corporations, representing around one-third of the total stock, are expected to play a crucial role in shaping office space demand. These factors, however, may lead to modest demand in the short term due to the ongoing global economic uncertainties, according to Crisil.
Gautam Shahi, Director at Crisil, explained, “Two primary factors will impact net leasing of office space this fiscal. First, the Indian IT/ITeS sector is experiencing a halt in headcount addition due to tapering revenue growth and profitability pressures, possibly leading to cost-control measures, including rent. Second, GCCs may defer large-scale leasing plans in India amid a weak macroeconomic outlook in key regions such as the US and Europe.”
Conversely, demand from domestic enterprises in sectors such as banking, financial services, insurance (BFSI), consulting, engineering, pharmaceuticals, and e-commerce is expected to remain robust, contributing to a projected net leasing of 32-34 million square feet in the fiscal year 2023.
Saina Kathawala, Associate Director at Crisil, remains optimistic about the future, stating, “Despite near-term challenges, we anticipate net leasing to grow by 10-12% in the next fiscal year, reaching 36-38 million square feet. GCCs are anticipated to be significant drivers of office space demand, capitalizing on the cost advantages of the Indian market compared to other developing markets, along with access to a skilled talent pool. Additionally, sustained demand from domestic enterprises is expected, supported by their strong financial health and promising growth prospects.”
Furthermore, a noteworthy shift in employer strategies, particularly in the technology sector, is emerging, as companies are pushing for increased physical occupancy in offices. Even those favoring work-from-home arrangements in the past are now encouraging employees to return to the office on most days of the week. Physical occupancy, which averaged 40% in the last fiscal year, is expected to rise to 65-70% in the current fiscal year.
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