Global slowdown to stall office space leasing demand: Report

The commercial office space leasing in the country is expected to remain stagnant between 32-34 million square feet this fiscal due to ongoing global uncertainties, creating caution among major tenant categories, according to a report by Crisil Ratings.

The report suggests that despite the global uncertainties, the inherent strengths of the domestic commercial real estate market and the gradual return to office setups should aid in increasing demand over the medium term, thereby ensuring stability in the credit profiles of office asset owners.

The tech sector, particularly IT and IT-enabled services, dominates the domestic commercial office space, occupying around 42-45 per cent of the operational stock. Additionally, global capability centers of multinational corporations have emerged as significant tenants, constituting roughly a third of the total stock. However, due to global economic headwinds, demand is expected to be modest at 32-34 million square feet this fiscal.

Gautam Shahi, a director at Crisil Ratings, anticipates a slowdown in net leasing due to a halt in headcount addition in the IT/ITeS sector, coupled with potential cost control measures, including rent. Additionally, weaker macroeconomic outlooks in regions like the US and Europe might lead global capability centers to defer large-scale leasing plans in India.

Nonetheless, sectors like banking, financial services, insurance, consulting, engineering, pharma, and e-commerce, which account for the remaining office market, are expected to sustain buoyant demand, resulting in a net leasing volume similar to fiscal year 2023.

Saina Kathawala, an associate director at Crisil, foresees a growth of 10-12 per cent in net leasing next fiscal, reaching 36-38 million square feet, supported by global capability centers and domestic enterprises.

The report highlights that despite near-term challenges, the medium-term outlook remains positive, driven by global capability centers' preference for India's cost advantages and skilled talent pool.

The analysis, based on Grade-A office spaces across major cities, reflects competitive rental rates in Indian cities compared to Asian peers like Shanghai and Seoul, and significantly lower rates than global hubs like Singapore, Hong Kong, Tokyo, Sydney, London, and New York.

(With PTI Inputs)