ICRA
According to ICRA, the outlook of commercial real estate, both the office segment and the retail mall segment is going to be stable for 2022-2023. The revision in the outlook for retail malls from Negative to Stable factors in the improvement in the rental incomes backed by contractual escalations in rentals and a strong rebound in trading density. The rental income for the mall operators in FY2023 is expected to surpass pre-covid levels supported by contractual escalations in rentals and a strong rebound in trading density. The demand drivers for retail malls stem from the relaxation in permitted occupancies of multiplexes and release of multiple big-budget films and improved footfalls and sharp recovery in retail consumption, the rating agency said. The outlook in office space continues at Stable and is supported by the resumption of back to office plans; robust hiring in the tech sector with strong growth in the sector along with expected growth from global capability centres (GCC).

“The footfalls are expected to reach pre-Covid levels in FY2023, however, the average spend per footfall is likely to witness some moderation when compared to FY2021-FY022. The rental income of malls in FY2023 is expected to surpass FY2020 levels by around 4-6%. The revenue is expected to grow by 45% Y-o-Y in FY2023 on a contracted base in FY2022 and support an improvement with operating profitability of around 60-70% in FY2023 (similar to pre-Covid levels) from 45-55% levels in FY2021 at the peak of the pandemic. The Debt-to-OPBDITA ratio is expected to ease to 6x-8x in FY2023 from the elevated levels of >12x in FY2021, with expected improvement in OPBDITA as various operating metrics improve to the pre-pandemic levels," said Mathew Kurian Eranat, Vice President and CoGroup Head, ICRA.

He further added that the debt service coverage ratio, which declined to less than 1 time in FY2021- FY2022 is expected to increase to 1.10-1.20x in FY2023 backed by improvement in rental recoveries. The trading values in FY2023 are also expected to surpass pre-Covid levels. Trading value had been significantly impacted during FY2021 and FY2022 due to pandemic induced lockdowns and restrictions, despite a jump in average spend per footfall that partly offset the decline in footfalls. On the flip side, demand growth can be impacted in case of any severe future Covid waves leading to restrictions by state and central governments. Net absorption of commercial offices in this sub-segment is expected to rise to 28 million sq ft in 2022 from 20 million sq ft and 19 million sq ft in 2021 and 2020 respectively. While the net absorption in 2020 and 2021 was impacted due to pandemic, it is expected to improve in the current calendar year backed by resumption of back to office plans and growth in hiring by corporate.
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