While there is increased caution in the office space rental market over large-sized deals, because of an economic slowdown in the US, the leasing activity is expected to pick up in the middle of 2023 as “more offshoring work comes into the country”, says Vikaash Khdloya, CEO, Embassy REITs – Asia’s largest REIT by size.

However, mid and small-sized deals continue to be inked across the market.

Typically, a large-sized office space deal involves leases of 800,000 sq ft and above; while 300,000 – 500,000 sq ft are categorised as mid-sized deals.

Despite the caution, Embassy leased 1 million sq ft across 19 deals in Q3 at 13 per cent in leasing spreads (fresh leasing and early renewals). Khdloya said the REIT leased 4.4 million sq ft this year, which is 90 per cent of FY23 annual guidance, one of its best performances post-Covid.

Delay in DESH Bill

ICICI Securities, in a research report said, the delay in introduction of the DESH Bill has led to continued vacancies in SEZ space and global macro conditions are expected to impact large space leasing decisions up to June 23. Small and mid-sized enquiries for non-SEZ space continue to be robust which will drive occupancies going forward.

“There is some caution in the market on large-size deals and rentals; this should change by mid-2023. We have done better than the market sentiments. We have also commanded a 5 per cent premium in rent; and an active deal pipeline of 0.85 million sq ft, paves way to pre-Covid occupancy levels of about 90 per cent in the next few quarters, ” he told businessline.

Back-to-office picking up

According to him, occupancies at same store levels are up at 88 per cent, slightly lower than pre-Covid levels. Overall physical attendance is up at 46 per cent, a sequential increase of 30 per cent, with back-to-office picking up. Embassy REIT reported a 17 per cent growth in revenue from operations at ₹865 crore, while the Net Operating Income (NOI) increased 13 per cent to ₹705 crore.

The REIT currently has 6.6 million sq ft in the development pipeline, mainly across Embassy Manyata and Embassy Tech Village in Bengaluru, with assets expected to be completed over FY23-27 at a total cost of ₹3,000 crore.

“Back to office trends are very prominent and has led to increase in occupancies across properties. Bengaluru and Mumbai market occupancies are better than pre-Covid levels, while Pune and the National Capital Region are witnessing increased queries,” he said adding “new assets along with MTM (market-to-market) on existing leases are expected to drive long-term growth.”

According to him, talks for acquisition of 7.1 million sq ft of space across Chennai and Bengaluru are continuing; and are “likely to be closed by the end of this fiscal”. This apart, the REIT is also in talks for additional acquisitions, and spreading out its portfolio (which is 74 per cent Bengaluru-centric). Most of these talks are in early stages.