With remote work gaining more acceptance during the Covid-19 pandemic, the office space market is currently undergoing a churn. As the lockdowns are lifted in many cities, companies are adopting a cautious approach toward leasing office space due to the uncertainty caused by the pandemic.
While there are fewer takers for conventional office leasing, co-working spaces are gaining popularity as they help employers save costs and offer more flexibility.
According to property consultant Cushman and Wakefield, the leasing of flexible workspace by corporations rose 73% to 31,538 seats during the January-June period as against the same period last year. In its latest report, the consultant said the total seats leased by enterprises could cross 50,000 during the 2021 calendar year.
Last year, enterprises leased 18,213 seats in the first six months and 36,255 during the entire year. “This sharp jump is observed mostly due to the preference of enterprises to enjoy the benefits of flexibility and cost optimization that flex spaces offer,” the consultant said.
Coworking space operators claim the demand has risen across the board and say the option is gaining acceptance even among large enterprises. Although the second wave of Covid-19 has retreated from major cities, medical experts warn that a third wave may come by the end of August. Related anxiety is preventing employers from committing to long-term leases, as they fear another clampdown on the movement of people.
With employees working from anywhere, employers are reassessing their real estate holdings and going for flexible workspaces. Some are even looking for distributed offices in the same or different cities to offer greater flexibility for employees.
Meanwhile, the gross leasing of office space declined by 22% year-on-year across six major cities during January-June this year. According to property consultant Colliers, the gross absorption in New Delhi, Mumbai, Chennai, Hyderabad, Bangalore, and Pune during the first half of this year stood at 10.1 million square feet, as against 13 million square feet in the year-earlier period.
Barring Bangalore, leasing activities remained subdued in the remaining five cities. In Bangalore, it increased to 4.3 million square feet in the first six months of this calendar year from 4 million sq ft last year.
In Chennai, the gross leasing of office space fell to 0.6 million square feet from 0.8 million in the first half of this calendar year, while in Delhi it declined to 1.9 million from 2.1 million. In Mumbai, the demand for office space declined marginally to 1.6 million square feet from 1.8 million.
In Hyderabad, it nearly halved to 1.2 million square feet in the first half of this year from 2.2 million last year. But the sharpest fall was in Pune where the square footage plunged to 0.5 million this year from 2.1 million last year.
The vacancy level of office space has risen in all the markets and this is despite the fact that overall countrywide supply has fallen 53% to 12 million square feet during January-June this year compared with the year-ago period.
In Bangalore, the vacancy has gone up to 13.8% from 8.3%, while in Chennai it more than doubled to 14.7% from 6.7%. In Delhi, the vacancy level has gone up to 23.7% from 20.2%, whereas in Hyderabad it is now 15.6% from 11.1%. Mumbai’s vacancy level has gone up to 18% from 15.7%, while in Pune it is now 12.2%, from 6.9%.