Office lease rentals in India are seen under pressure in the near-term partly due to the slowdown in the US and Europe, delayed decisions by some prospective office occupiers and new supply.

Over the past four quarters, the monthly weighted average quoted rents for Grade A office space has remained flat in the range of ₹94.4-94.9 per square feet with a downward bias in the December quarter, data from property consultant Colliers showed.

During the same period, vacancy levels in offices have also remained flat, indicating that while companies are returning to offices, but it is happening at a slower pace than anticipated.

After rising 23 per cent year-on-year to nearly 43 million square feet in 2022, supply is seen moderating this year due to uncertain market conditions, Colliers said.

Data from the country’s first real estate investment trust to be listed, Embassy Office Parks REIT, show that office vacancy levels rose to 20.8 per cent in 2022 compared to 19.1 per cent year ago.

In its new leases, re-leasing spreads for the quarter to December was 3 percent, compared to 17 percent year ago. Re-leasing spread is the change rent per square feet between new and expiring leases, expressed as a percentage. The renewal spread for the quarter at 21 percent was lower than the 39 percent seen year ago.

Embassy REIT, which has private equity firm Blackstone Inc as one of its sponsors, owns prime office property in Bengaluru, Mumbai, Pune and the National Capital Region.  Close to half of its tenants are Fortune 500 companies and 80 percent are multinational corporations.

While office absorption in the country touched a record level in 2022 at 50.3 million square feet, it is seen flat in the current quarter though supply will be increasing. Total Grade A office stock in the country was at 648.2 million square feet at the end of December.

According to Colliers, Bengaluru, which had the maximum leasing share last year and contributed to a fourth of the supply, vacancies are seen flat in the current quarter at about 12.7 percent and no change is seen in the average rentals at ₹90.6 per square feet, with new supply of 6.2 million square feet coming up in the ongoing quarter. Absorption is also seen rising, though it fell one percent in the December quarter.