“The recovery in commercial real estate has been encouraging as occupancy rates and leasing activity have registered an overall increase. We estimate all segments to touch pre-Covid levels by the year-end as long as economic activities continue at the current pace. From an office perspective, we anticipate that sustained drive-in leasing activity would continue to bring a new focus on high-quality buildings by developers to differentiate their assets and attract occupiers,” says Anshuman Magazine, Chairman & CEO - India, South East Asia, Middle East & Africa at CBRE. 

Meanwhile, CBRE has come out with the findings of its latest report: ‘2022 India Office Occupier Survey’. The report findings indicate that 73 per cent of occupiers in India are evaluating hybrid working arrangements going forward. The trend emerges as companies primarily opt for flexible working patterns post the pandemic. Around 78 per cent of occupiers have underlined employee health and wellbeing as the most important element while facilitating the return to office.      

As per the CBRE report, the flexible working approach is a mix of four patterns that include just-in-case remote working for specific circumstances, 3+ office days a week, an equal mix of office and remote work, and remote working for 3+ days a week. About 38 per cent of respondents stated they would consider an equal mix of office-based and remote work, while the remaining 35 per cent of respondents want 3+ office days in a week. The report also highlights that the technology and BFSI corporates who plan to implement hybrid working policies would mainly prefer an ‘equal mix of office-based and remote work’ or ‘mostly in office’.

The adoption of activity-based working, hot-desking, and targeted mobility is expected to continue to gain momentum in the coming years. Among the flexible seating options, hot-desking has grown by about 100 per cent over the past two years. About 44 per cent of companies retained dedicated seating arrangements as of 2022, well below the 81 per cent of firms who did so pre-pandemic, according to the survey. The report further highlighted that technology would be critical in the adopting of flexible working models, with 59 per cent of respondents in India intending to increase their investment in WorkTech to achieve these goals.

Sustainability and wellness

As per the survey findings, occupiers are eyeing sustainability and wellness as part of their strategy to expedite a return to office as ESG principles gain momentum. Around 52 per cent of respondents are willing to relocate to occupy ESG-compliant buildings, while another 7 per cent are willing to relocate even with a premium rental. Office demand is expected to continue to grow as 62 per cent of respondents in India intend to increase the size of their real estate portfolios over the next three years, while one-third of the respondents indicated consolidation in fewer locations, along with meeting flexible demand via co-working space as part of their flexible portfolio strategy.

“The return to office, for several corporates in India, is already underway, with varying occupancies currently observed across cities as well as sectors. However, with the widespread adoption of hybrid working since the pandemic, many companies are still considering the degree of flexibility needed to enhance employee productivity and connectivity. Moreover, with the short-term leasing sentiment already picking up – a trend we expect would continue in subsequent quarters – expectations of long-term portfolio growth remain positive. We also expect the increase in leasing activity to bring a new focus on large-sized and high-quality buildings by developers to differentiate their assets and attract occupiers,” says Magazine.

Ram Chandnani, managing director, advisory & transactions services, CBRE India, believes that corporates planning to adopt hybrid working in the long run would need to provide employees with formal guidance related to working schedules and eligibility. Greater coordination among supporting functions like HR and IT as well as their alignment with the business, would also be crucial.

Additionally, a key priority for office occupiers in India would be to tailor workplace strategies to ensure their offices are suitable for flexible working. Owing to this, CBRE has observed a shift from fixed to flexible workplace configurations, which is likely to continue, going forward. Occupiers are also expected to enhance the appeal of ‘me’ spaces and create more flexible ‘me /we’ spaces.

Apart from office market, the other segments of the commercial real estate segment are also turning around. A CBRE report says that in the industrial and logistics sector, Tier-I cities are leading the growth. Leasing activity grew by 7 per cent to 6.5 million sq ft in Q1 2022 (YoY), with Delhi-NCR, Mumbai, and Kolkata dominating the space take-up. Leasing is expected to grow across the businesses, led by continued expansion of e-commerce and 3PL players considering a steady macro-economic recovery. It is estimated that implementing emerging technologies such as AI, blockchain, big data, and IoT across the supply chain will enhance delivery throughput and improve space efficiencies.

The retail sector also witnessed a strong comeback in Q1 2022 as retailers covered lost ground during the peak Covid period – and space absorption across grade A malls and high streets in Q1 2022 grew 40 per cent (YoY) with Pune, Bengaluru, Delhi-NCR, and Chennai having a significant share in leasing activity. Investment-grade mall supply improved by 330 per cent (YoY) in Q1 2022.

Going forward, CBRE believes that demand from categories such as QSRs, supermarkets, electronics, and consumer durables will be sustained, while other categories such as fashion & apparel and beauty are likely to pick up owing to pent-up demand. “We also anticipate retailers likely accelerating the adoption of omni-channel as lines between physical and online retail continue to blur due to a shift in shopping patterns during the pandemic and the rapid growth of e-commerce. Additionally, stores will be multi-functional and move beyond pure retail,” adds the report.

“Absorption in the first two quarters of the year has already surpassed more than 80 per cent of the total absorption seen in the whole of 2021. Clearly, office demand is headed to close at 40-45 million sq ft by the end of this year. As a result, rentals are also likely to firm up in the next two quarters as occupancy levels rise,” says Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers.

Meanwhile, JLL’s Office Market Update-Q2, 2022 says that gross leasing volume for Q2 2022 (April-June 2022) stood at 14.3 million sq ft, up 36 per cent (Q-o-Q) and second only to Q4 2021 in the past 9 quarters. During the quarter, Bengaluru was top of the charts, accounting for 34 per cent, followed by Delhi NCR (30 per cent), Mumbai (12 per cent), and Chennai (11 per cent).

As per the JLL report, the tech segment saw its share rise to 33 per cent from 25 per cent Q-o-Q, clearly outlining its continued dominance as the most prominent occupier segment in India’s office sector. Manufacturing/industrial continues to show impressive gains with a 13 per cent share of the market activity, backed by policy push yielding results in this segment. BFSI and consulting segments held shares of 10 per cent and 8 per cent, respectively. 

Flex continues to make rapid strides as a major occupier segment with its mainstreaming among occupier space strategies resulting in a share of 20 per cent in quarterly leasing activity. In fact, flex leased 2.8 million sq ft in Q2 2022, the highest in 12 quarters and the H1 2022 numbers are already 30 per cent higher than the annual flex space take-up for both 2020 and 2021 individually.

Enterprises leased around 39,000 seats in flex centres across the top seven cities during the April-June quarter of 2022. This marks a new high as the quarterly number surpassed the total flex seats leased during the whole of 2020. Bengaluru leads with over 12,000 seats taken up by enterprise, followed by Hyderabad with around 8,000 and Pune with 6,500. “Flex seats leased during H1 2022 stand at just over 65,000 seats, like the annual numbers for 2019 and are already 75 per cent of the 2021 number. The leasing of flex seats looks well on its way to crossing over 100,000 by the end of the year.”

As per JLL Research, global economic headwinds and geopolitical issues give rise to some concern about global growth forecasts. This may have some impact on occupiers’ growth plans and likely create some delays in real estate decision-making. “We do expect some effects to be visible later towards the end of the year or early next year. With ‘back to the workplace’ in full swing, market activity is primed to remain robust with demand for conventional space as well as flex slated to be more certain,” says the report.

However, as per the JLL report, the return-to-work decision is not a binary one and a hybrid steady-state is emerging. This has enabled occupiers to formulate a hybrid real estate strategy as well. India will remain central to the tech offshoring/outsourcing story. With digital spending rising and cost measures likely to hold weight, India’s low RE costs and the vast talent pool is expected to keep the office sector in a healthy state over the next 12 months. With occupiers in an active state, ongoing demand currently stands at 36-39 million sq ft across the top seven cities, higher than even pre-Covid levels. This active demand is representative of all major ongoing space requirements and deals which are in advanced stages of negotiations and closure.