Demand for office space crumbles
Sweeping changes in the work space environment led by the need to keep social distance along with economic uncertainty unleashed by the pandemic has roiled the demand for office space in India.
As occupiers put ongoing deals on hold or surrendered office space to cut cost as business came to a standstill, demand for office space — a barometer for the economy and employment — crashed 79 per cent during April-June.
A Knight Frank report detailing the performance of the real estate industry in the first half of 2020 revealed that around 6.3 million square feet office space was surrendered by the occupiers to landlords as desperate corporates strived to conserve cash amidst massive revenue fall.
“The office space market felt the full force of the Covid-19 pandemic in Q2 2020 with the lockdown crippling the economy and threatening to completely change the face of the Indian workplace,” the report published on Thursday noted.
Bangalore, arguably the world’s back-office capital, accounted for 56 per cent of the surrender. In Calcutta, one of the smallest office markets in India, around half a million square feet office space was given up.
“Companies are giving up bigger space and taking up smaller offices, at times with marginally higher rent. Moreover, big deals are also being delayed or re-negotiated,” Swapan Dutta, branch director (East) Knight Frank, said.
He predicted another 0.5 million sq feet office space could be surrendered in Calcutta later this year.
The fall in the first half of 2020 comes on the heels of the best year in office space transaction and completion recorded in 2019. Calcutta, along with Hyderabad and Ahmedabad, recorded zero transactions in April-June.
While the data set generated during last three months can hardly be used to measure the mood of the occupiers going forward, the proclaimed decision of IT bellwether TCS to have only 25 per cent of the employees coming to office by 2025 has cast a dark shadow on office space — the shining star among all real estate asset classes in the last decade.
Shishir Baijal, chairman of property consultancy Knight Frank, agreed that work from home has emerged as an effective business continuity process during the pandemic as corporates were left with no choice but wondered if the change would be permanent.
“The long-term efficacy of this arrangement will have to be evaluated carefully to understand its impact on the overall business, going beyond just the mere financials. While the savings on real estate expenses are marginal by all means, this saving has to be measured against qualitative aspects of the business such as lack of control, retention and attraction of talent, competitive edge, data security etc,” Baijal told The Telegraph.
Amidst the gloom, the need for social distance is throwing up small crumbs of business opportunities too.
“Top companies are looking at additional space for a short term (six months) in managed office space,” Dutta pointed out.