Net Leasing of Grade A Office Space in India to Grow 10-12% This Fiscal
Net leasing of Grade A commercial office space in India is projected to increase by 10-12% this fiscal, reaching pre-pandemic levels of 41-43 million square feet. The growth is driven by strong demand from global capability centers (GCCs), banking, financial services, insurance (BFSI), and manufacturing sectors.
This uptick in leasing activity is expected to stabilize vacancy rates, especially as underperforming special economic zones (SEZs) are denotified, boosting the cash flow and credit profiles of commercial real estate entities rated by CRISIL.
A CRISIL Ratings analysis of office space owners, with over Rs 70,000 crore in debt and a total leasable area of approximately 150 million square feet across seven major cities, supports these findings. GCCs, which are projected to account for 40-45% of net leasing, are expanding due to competitive office rentals and the availability of skilled talent in cities like Bengaluru, Chennai, Pune, Hyderabad, and Gurugram.
Gautam Shahi, Director at CRISIL Ratings, notes, "The Indian commercial office space industry is set for continued recovery this fiscal with high demand absorbing the elevated supply. Vacancy levels, which rose by 600 basis points during the pandemic, are expected to stabilize at around 17.4-17.5%."
Sector-wise, IT/ITeS companies are expected to see modest growth, while demand from the engineering, manufacturing, and BFSI sectors will remain robust. Flexible workspace operators will also continue to gain traction due to their adaptable offerings.
The recent amendment to the Special Economic Zones Act, 2005, which allows floor-wise denotification of IT/ITeS SEZs, is expected to further support the market by addressing low occupancy rates.
Pranav Shandil, Associate Director at CRISIL Ratings, added, "The improving net leasing demand and SEZ Act amendment will benefit CRISIL's commercial real estate portfolio, with 35-40% of the vacant SEZ stock expected to be demarcated in the next two fiscals, leading to a 9-10% increase in cash accruals this fiscal."
