Will office real estate bounce back this year?

livemint.com:

BENGALURU : The second half of 2023 saw an uptick in office demand and leasing, propelled by global capability centres (GCCs), flex operators, and domestic corporates. Is this the beginning of a sustained recovery curve for the commercial office sector? Mint explains: After a seven-year bull run, the sector cooled in 2020 when offices shut down due to the pandemic and work-from-anywhere became the new norm. Companies postponed leasing decisions and renegotiated rentals, leading to a rise in vacancy.

Construction delays also led to a dip in new office supply. After the pandemic, residential real estate took off but the office sector saw no respite, hit by global headwinds this time. US technology companies, the largest occupiers of office space in India, laid off people and put expansion plans on hold.

A funding crunch in the startup ecosystem didn’t help either. It would appear so. After a sluggish first half, net absorption of office space picked up in the July-December period of 2023.

Last year saw an annual absorption of 41.97 million sq. ft in the top seven cities, trailing only the levels recorded in 2019, as per property advisory JLL India. This is seen as the beginning of a sustained growth phase.

Property advisory CBRE sees demand picking up in the second half of 2024, led by clearer visibility of the global macroeconomic situation and an uptick in the IT services sector. Bengaluru, followed by Delhi-NCR and Hyderabad may drive the office market. It is worse elsewhere.

Global vacancy rates have been rising, with North America the worst hit. As a mix of hybrid and work-from-home model prevails, office rents and leasing may fall further in 2024. In comparison, the fundamentals of India’s office market look