With nearly 7,400 leases of around 90 million square feet due to be renewed in 2021 in the six major commercial real estate centers – Bengaluru, Mumbai, Pune, Chennai, Gurugram and Noida – real estate companies are now hoping for a renewal on the back of the setting spree in large Companies.
According to ANANROCK’s research and industry data, 2021 has the highest pipeline for lease expiration compared to the next two years – 2022 and 2023.In 2023, 4,200 leases for 55 million square meters were signed.
“The office market has come under pressure since the outbreak of the pandemic. However, the IT and ITeS sectors have been on a hiring frenzy in 2020 and 2021 due to massive business provisions. To accommodate these employees in the future when we see gradual development . ” The return of employees and the introduction of hybrid practices in the workplace by infotech giants will increase the demand for office space, “said Prashant Thakur, Director & Head – Research at ANAROCK Property Consultants.
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Of the 90 million square meters to be renewed in 2021, Bengaluru has the highest share with around 37 percent, while Mumbai comes in second with 19 percent. Pune is in third place with 17 percent, Gurugram with 15 percent. According to an ANAROCK report, Noida has the fewest number of leases to renew, accounting for just 3 percent of the total lease numbers and space.
While the robust attitudes of large companies are expected to help the sector renew leases, smaller companies may be looking to give up space.
“The leases, which are scheduled to be renewed in 2021, were made at much lower rents – at prices that were around 3 to 5 years ago – as office leases are typically long-term. In many of them there is some scope for escalation Rent leases, “Thakur said.
The average vacancy rate in class A office space in the top 7 cities has risen again and has exceeded the 15 percent mark. Rising COVID-19 cases in cities like metropolitan Mumbai (MMR) and Bengaluru, the highest commercial demand markets and tight curfew restrictions are a cause for concern, the report said.
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Embassy Office Parks REIT, the largest provider of office space in the country, announced in its latest quarterly results that around 9 million square feet of space would run out in FY22, which is just 6 percent of revenues and existing rents 47 percent lower compared to the Market rents per CBRE and an expected 1.4 million square foot exits, which is 4 percent of sales. This is a churn from “business as usual” and also due to COVID-induced exits and portfolio housekeeping. However, it said it was on track for additional rent increases of 14 percent due to 7.7 million square feet in 89 leases in fiscal 2010.
Similarly, Mindspace Office Parks REIT expects tenant uncertainties about future rental obligations for the next few quarters. A total of 2.3 million square feet of lease expiration will expire, with 0.5 million square feet expiring early and the remainder 1.8 million square feet on other renewals.
However, with most IT companies not reducing their hires, industry experts expect total office space demand to gradually normalize in 2022 and 2023, with IT / ITeS sectors being among the main drivers of all leasing activity in the top cities.
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