IT firms’ share in office leasing is still shrinking

The upshot: contribution of information technology (IT), which was a key driver of demand for Grade A office spaces, has been on a decline. Property consultant Knight Frank India’s analysis of the commercial realty sector showed that the share of IT industry in overall leasing transactions fell to 27% in the second half of 2021 (H22021) from 41% a year ago.

Pandemic-related uncertainty and mobility restrictions have prompted IT firms to postpone decisions to lease office spaces. After the second covid wave, companies have adopted a hybrid working model. Although the IT industry was the largest contributor to total office transactions in H22021, the steep decline in its share in just a year has impacted rentals. Rentals fell 7.6% in 2021, the Knight Frank report says.

View Full Image

While IT companies are inching towards implementation of back-to-office, limited clarity on the gravity of the Omicron variant of coronavirus continues to cloud the demand outlook for office spaces. So, analysts see a low possibility of a complete return to office happening in the near term.

“Return to office has been slow, given the majority of the workforce is employed in the technology outsourcing sector. By Dec’21, less than 25% of workers were likely back in offices,” analysts at Jefferies India Pvt. Ltd said in a 6 January report.

“Consequently, despite record hiring in the tech industry, employers have been slow to conclude leasing renewals/new signings. As return to office gains speed from Q2, we believe office vacancy levels will decline but is unlikely to reach pre-covid levels in 2022,” the report added.

That apart, elevated supply of commercial space in India means the scope for meaningful impr-ovement in rentals is low. Against this backdrop, investors must track management commentary of listed Reits on rentals and renewal of office leases in the December quarter.

Meanwhile, commercial property developers hope demand for office spaces would rise, aided by the IT sector’s hiring spree. The top five IT companies in India have hired about 0.26 million employees during April to September 2021, said Knight Frank, which expects these companies to contribute incrementally to office space demand of around 12 million sq.ft going forward.