Office demand sees green shoots
The resurgence of Global Capability Centers (GCCs) has helped demand for Grade A office spaces make a comeback. This has meant an improved leasing trajectory for office asset owners, who have been grappling with muted demand lately. In a spillover effect of challenges facing the Indian IT sector, leasing took a beating given that technology companies have been top contributing tenants for Grade A offices until recently.
Nonetheless, the tide is gradually turning in favour of commercial realty. "The gross office leasing in CY23 rose by 15% year-on-year across top eight cities resulting in absorption of 59.6 million square feet," said Viral Desai, senior executive director, occupier strategy & solutions, Knight Frank India. On average, rentals in the top eight cities improved by 5-7% in CY23 and Desai foresees rentals rising in the similar range in CY24.
This is likely to be driven by the rising share of GCCs in overall leasing pie. Higher traction in overall leasing has aided the performance of companies in the listed space. Aggregate gross leasing of key listed firms rose to a multi-quarter high in Q3FY24.
For Embassy Office Parks REIT, 80% of the total leasing demand in Q3 was driven by GCCs. For Brookfield India Real Estate Trust, GCCs accounted for 54% of the new leasing. “Over the past couple of years, higher exits, predominantly from IT/ITeS companies have resulted in net leasing being negative; while exits continued in Q3FY24, the pace seems to be reducing.
Consequently, net leasing was positive for all the major developers," said a Nuvama Research report. Gross leasing includes renewals, while net leasing refers to new additions. Encouragingly, management commentaries of listed REITs (Real Estate Investment
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