Pent-up demand expected to translate into healthy office leasing traction in 2022; strong recovery in metrics of retail malls post-second wave of the pandemic, says Mathew Kurian Eranat, Vice President & Co-Group Head, ICRA Limited.

According to him, the resumption of work from offices, attempted by corporate occupiers in Q4 FY21, got deferred due to the second wave of the pandemic. However, gradual resumption of offices is expected from early 2022.

Consequently, the new leasing demand had seen significant correction which, along with the addition of newly completed inventory, resulted in vacancies inching up across most large portfolios by around 5-10 per cent, even as collection efficiencies remained healthy. Large office parks reported physical occupancy in the range of 10-15 per cent as of September 2021.

As office resumption picks up, it is expected to translate into healthy traction in new leasing activity, as the underlying demand potential from occupiers, who are mainly IT/ITES and global MNC companies, is estimated to remain strong.

Retail malls have witnessed a faster recovery in operational metrics and cash flows after the second wave, compared to the recovery after the first wave of the Covid-19 pandemic, driven by faster relaxation in the restrictions and improved vaccination coverage.

Also read: Will the bounce-back in real estate sector sustain in 2022?

The recovery trajectory is expected to sustain in H2 FY22 driven by pent-up demand, high vaccination coverage, resumption of multiplexes which also coincided with the festive season.

Recovery in the rental income is expected to be up to 75 per cent of pre-Covid rentals for FY22, which was around 45-50 per cent in FY2021. During FY23, the rental income is expected to be in line or better than the numbers achieved in the pre-Covid years.

“While the risks of subsequent waves of pandemic impacting business operations will remain, the strong recovery trends underscore the long-term growth potential for the sector and assets with strong liquidity profile and financial flexibility are expected to fare well, despite the temporary disruptions,” he said.

Residential real estate

According to Eranat, the overall housing sales volume in the top eight cities (Mumbai metropolitan region (MMR), national capital region (NCR), Bangalore, Hyderabad, Pune, Kolkata, Chennai, Ahmedabad) grew by 74 per cent on y-o-y basis, partly on the back of the lower base. In FY21, residential sales were down 29 per cent (for the full year).

“Demand has been supported by stamp duty cuts, multi-year low interest rates and rise in income levels, which have enhanced affordability and supported the strong rebound in sales post the lockdown during the pandemic waves,” he said.

Also read: Need for workplace flexibility and safety will impact real estate sector: CBRE South Asia

The growth in hiring numbers, stable income levels and demand for better and larger homes on account shift to a hybrid working model in customer segments working in IT/ITES, BFSI and related sectors have also supported the demand levels.

“Larger and listed developers have reported strong performance, as the trend of consolidation in the market continues,” Eranat said.

While the demand trend is expected to remain in an upcycle in the near term, he says, the market share gains for larger developers may accentuate the pressure on smaller developers who had already been impacted by various regulatory developments in the sector over the last half-decade.

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