The office sector in India continued to witness a robust recovery in Q1 2022, as leasing activity grew by 97% Y-o-Y to touch 11.4 million sq. ft. Bangalore, Chennai and Delhi-NCR dominated absorption during the quarter, accounting for almost two-thirds of the transaction activity, according to CBRE’s latest office report ‘CBRE India Office Figures Q1 2022’.
Technology corporations accounted for maximum commercial leasing with a share of about 34% which is in line with expectations for this year.
At ImpactR we are working with commercial space owners and businesses looking for these properties to lease. This helps us capture and analyse the data, which is showing some interesting trends emerging in commercial leasing for 2022.
Focus on better amenities - As more and more businesses are opening up and reverting to pre-pandemic modes of working, health and general well-being are top considerations and employees are expecting better amenities.
With increased demand for more office amenities, landlords and tenants are redesigning work spaces in response to employee preferences and residual fears about workplace health and safety.
In the wake of Covid 19, the relationship between wellness and physical space is looked at more seriously than ever before. People view spaces and places in which we work differently. Is the air in the building filtered? Does one need to touch surfaces and how regularly are they cleaned? How crowded are the dining areas and will it be possible to maintain distance while there? Are there sufficient and properly maintained hand washing facilities? These are some concerns office space tenants are increasingly focussed on.
This trend is clearly visible as closing a lease for a Grade A commercial space has become much easier than the one with lesser amenities. Premises with more open spaces and hygienic surroundings, even if located away from the central business district are witnessing leasing traction even before completion.
Potential tenants are also enquiring about provision of isolation rooms and medical facilities on premises. Probably going forward we can expect to see increasing demand for more sophisticated and tech enhanced commercial property offerings that would assure the occupants of better safety and hygiene.
Hybrid work friendly spaces - We are also witnessing clear evidence emerging in many corporates’ intended shift towards hybrid working policies. This is being used to keep offices less crowded by letting different people work on different days and also to tactically retain and attract top talent.
It will be interesting to see whether companies make changes in the amount of office space they’re using and the ways in which they use it, particularly if hybrid work becomes the predominant norm. The experts at ImpactR believe that hybrid work will have a variety of effects on the work environment but might not change physical office space needs.
As corporations take the hybrid route, the employees’ expectation will be to use the same or more space allocated to him pre-pandemic. This is more true for people who had individual offices. Businesses will also have to figure out how workers can share an office using alternate-day hybrid work schedules. It is still early to put a definitive thought on it, but it can have a major impact on commercial space leasing for offices in future.
It will also be intriguing to predict the impact hybrid work will have on restaurants, entertainment zones and retail space leasing. The trend will start getting clearer as these places open up gradually to full capacities.
Flexibility built into contracts - One interesting trend being observed is that more companies are willing to make commitments to long-term leases which is contrary to what was the trend during pandemic. Businesses are not looking to reduce their footprints just yet and it is testimony to the fact that they are upbeat about future prospects. However, flexibility in contract terms is the key here.
There is an increasing trend for renewals, renegotiations and addition of flexibility clauses in case another pandemic like event occurs. The commercial property owners who are adapting fast to this reality are finding it easier to lease out their spaces compared to the other set who are adamant on going about the agreement the same way as pre-pandemic.
The leasing services should be prepared to negotiate on behalf of their clients the modalities for rented spaces to contract or expand while landlords need to be more responsive to tenants’ needs regarding amenities and services. Businesses are right now in a flux and working out options with employees and flexibility shown by property owners to help them at this time could be the foundation of a long term profitable relationship.
Managed space demand - Managed space business took a big hit during peak pandemic period, but is finding some new traction. While the share of flex spaces was about 5 percent a year back, it is fast outgrowing the rate at which direct lease to corporates is expanding. Even mainstream corporates are looking to explore flex offices and this has egged on these players to expand both in metros as well as non metros.
Amongst the large-sized lease deals this year, flex spaces account for about 20 per cent. Pune has led this growth followed by Kochi, Kolkata and Ahmedabad. These growth numbers bode well for the commercial leasing business as the managed space companies have been able to transform even ordinary spaces into Grade A type spaces in the past.
Another fast emerging and a very novel trend is where a large corporate leases a big space in the CBD area and simultaneously also looks for leasing multiple small spaces in other parts of the city or other smaller towns. This is reminiscent of a hub and spoke model. The idea is that some employees who want to work from closer home can use these spaces, while the businesses don’t need to worry about loss of employee productivity as observed in work from home arrangement.
Environmentally sustainable spaces - A number of extreme weather events across the world over the last few years have brought focus on sustainable lifestyle. This trend is increasingly extending to office spaces. As economic recovery gains momentum in 2022, we expect an emphasis on large-sized, high quality and environmentally sustainable commercial buildings to attract good quality tenants.
As builders adopt new sustainable construction practices and materials, there will be more options and large multinational corporations will find these attractive in order to placate the demands of green activists to reduce carbon footprints. ImpactR research team believes that sustainable commercial spaces will see incrementally more activity in years to come.
As per a recent JLL study, India’s office leasing market is expected to grow at a strong 30–35% in 2022 on the back of growing traction for the IT industry at a time of increased tech spending and digital transformation from global corporations. The retail and entertainment businesses will take some more time to get on a growth path. Warehouse leasing is also witnessing hectic activity and is expected to sustain this growth over next few years. This bodes well for the leasing business. The recent trends as discussed above is also a positive development, as these changes will compel property owners and tenants to work collaboratively to overcome the challenges posed by changing workspace expectations of employees.