Office space leasing in 2021 may cross 31 million sq ft—last 10 year average
- Average net absorption of office space in last 10 years at 30-31 million sq ft, in 2020 it is expected to remain somewhere around 25 million sq. ft
- Still just 8-10% of people have returned to the workplace, people are not expected to come back to offices until the vaccine is there
- Co-working segment to gain in medium to long-term, although there will be pain for next one year.
Contrary to general expectation, the net absorption of office space in 2021 is expected to be at par with the average of last 10 years i.e. 30-31 million sq ft. At present only a fraction of employees are coming to offices, the numbers are expected to improve once we have a vaccine. The future of co-working is looking robust, as average co-working space has doubled during 2020 compared to 2019.
Anuj Puri, Chairman, Anarock Property Consultants said “I am pleasantly surprised by the absorption. Honestly, I didn’t think that this calendar year will be 50-60% of 2019 absorption. In June, I would have said it would be between 16 to 19 million sq. ft, but now the net absorption is likely to be somewhere around 25 million sq. ft. It is surprising.”
Puri was speaking at a webinar organized by Workplace Trends India, which is founded by Tushar Mittal, who also heads interior design firm SKV. Manisha Natarajan, a Media, Content & Communication Strategist was moderating the penal discussion.
After dip in net office absorption in Q2 2020, it started improving gradually. “In comparison to Q2, the absorption went up by 63%, but if we were to compare Q3 of the last year, the absorption went down by nearly 47%. So, last year in the first nine month we saw nearly 32 million sq. ft. of net absorption. This year, in the first 9-months, we have only seen 17 million sq. ft. Hence, we expect this year to end with around 25-27 million sq. ft absorption and in comparison to 46 million sq. ft. last year, this is still a drop of 42-45%. 2019 was a very extraordinary year of 46 million sq. ft. It will be wrong to take that as a benchmark. We should take the average of the last 10-year as a benchmark, which is around 31 million sq. ft. and there is a very good chance that in 2021 we will cross that number. In 2019, it was 46, but a year before in 2018 it was around 36 million sq. ft.,” said Ramesh Nair, Country Head and CEO, JLL India.
While net office absorption has improved considerably, only a fraction of employees have returned to work place so far. The percentage is further low when it comes to IT parks. “Our research shows it is actually 8% at large campuses. There are two main reasons for it. There are many companies which have gone ahead and announced remote working plans till March 31, 2021 and employees don’t need to come to office. Secondly, employees themselves are not very confident given the public transport situation in the country. It is a gradual process. Occupiers are highlighting that things are improving but very gradually and WFH don’t work for everyone and people will slowly start coming back to office,” said Nair.
Puri echoes the thought. “We don’t think we are going to see people coming until the vaccine is there. It is 9-11% at various office parks and companies are not pushing their employees. Whether WFH works or not is a question mark, but until the vaccine comes in, the percentage will continue to remain low. Many of the IT Parks are not opening up. Clearly corporations are not there to push the employees. They have declared WFH till 31st March or 30th June 2021. Now, there is something called WFA – Work from Anywhere and they are doing their work very effectively and efficiently,” said Puri.
Anshul Jain, MD-South East Asia and India, C&W, agree with his peers. “Yes, people are scared but there is also a clear distinction between personal and work. They are out in markets, going everywhere buying stuff, but when it is about coming to offices, they are not keen. It is because of corporate cultural issues - MNC work culture and for right reasons,” said Jain.
WFH arrangements to continue for few more quarters
Overall office absorption has been impacted because of the WFH arrangements considering the pandemic. Impact is here to stay for few years, but not permanently. “If we have to put a number for the next two year of how much real estate office absorption is going to be impacted because of WFH, it would be around 20-25% for the next two years,” said Nair.
“From March to June, we didn’t have a choice. It was necessary, we were forced to WFH. But today, WFH is more of a supplement. The 30 million sq. ft. of net absorption that we expect next year would have been around 35-36 million sq. ft. in absence of WFH,” added Nair.
“Is this the behaviour that is here to stay? Is de-densification only there till a vaccine is available? Whether it is the size of the apartment, number of people living in the apartments, infrastructure, network, I think it is very difficult for people to manage long duration from home. Yet, I agree that there will be many functions in organisations like HR, Legal, and Finance etc that have been very efficiently working from home. There may be many functions, which will be required to come to office 2-3 days in a week and don’t need to come in for 5-days a week. But overall people do want to get back to work and clearly, teamwork, collaboration is important,” said Puri.
Jain believes that there will be a lot of experimentation in the office set up in the coming months with work-from-home and other concepts but nevertheless, the future of commercial real estate is bright in the coming fiscal.
Co-working segment to gain from pandemic in medium to long-term
“Future of co-working will be bright. Today a lot of companies and enterprises want flexibility. Lot of corporates don’t want to make capital expenditure on office interiors and they are increasingly opting for co-working spaces. The future is going to be very good for the co-working players. However, there will be a lot of pain the next one year but if they survive this period then the future is really great for them,” said Nair.
“Average co-working space has doubled to 70,000 sq ft in 2020 from 35,000 sq ft in 2019. Enterprises are taking up space in co-working setup and these coworking players are now catering not just to freelancers and startups but to larger enterprises and hence they are taking up bigger spaces. The future of the co-working space is really bright,” mentioned Nair.
Puri is also having similar views on the future of co-working spaces. “Fundamentally, co-working is great business, as a concept it is a fantastic business. The future is bright. There are companies who now want to seat their employees closer to the operations and are opting for co-working spaces,” said Puri.
However, Jain believes that Co-working operators has to concentrate on enterprise clients to stay afloat. “There was two-three different type of customers for Co-working or Manage office space. There were individual, there were startups and then there was enterprise. The first two individual and startups may continue to work from home and they may not come back until 2021, by 2022 they might come back, therefore focus on enterprises,” said Jain.