Second Covid-19 wave likely to dash expectations of a sharp recovery in office leasing segment in CY2021: ICRA

Our Bureau | | Updated on: Jul 02, 2021

VISAKHAPATNAM, ANDHRA PRADESH, 22/12/2016: A view of new building of Tech Mahindra which is taken on lease by AP Electronics & IT Agency for allotment to IT companies in Visakhapatnam. Photo: K.R. Deepak | Photo Credit: DEEPAK KR

Long-term prospects, however, appear favourable


The second wave of Covid-19, that is surging across the country, has left the metro cities especially vulnerable and it may delay the recovery in new office leasing activity. According to ICRA, the share of employees continuing to work-from-home may remain high , owing to the health risks. Without immediate possibility of a large number of employees returning to offices, potential leasing transactions may get further deferred.

The office leasing segment of commercial real estate sector had maintained stable credit metrics over FY2021 on the back of healthy collections, low-to-moderate impact on occupancies and expectations of a bounce-back in new leasing activity which had built-up in the latter half of the year .

Mathew K Eranat, Co-Group Head & Vice President at ICRA said, “In assets which are already operational, the quantum of lease terminations has broadly been in line with past trends, indicating that such terminations were not entirely on account of Covid-19 pandemic, barring some corporate office occupiers rationalising their space requirements. However, refilling of such vacant spaces is taking longer in the post-Covid environment, leading to higher vacancies in operational assets.”

With a steady stream of assets becoming operational in the near term, the demand-supply gap could temporarily widen further.

Long-term prospects encouraging

Nonetheless, long-term demand prospects appear favourable for the sector considering that the broad occupier base in such assets has not witnessed any material business impact due to Covid-19. Recovery to the earlier levels of demand can rebalance the current demand-supply mismatch in the long term.

ICRA notes that in comparison to other segments within the real estate sector, the office leasing segment witnessed the least impact on operational cash flows during FY2021.

Close to 130 msf of the projects are under various stages of development across markets currently. Even assuming that 20% of such projects may see delays or deferment, the supply pipeline in the next three years would remain stable.

Published on April 19, 2021
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