Commercial real estate has bounced back after Covid-19 pandemic blues

Among the worst hit sectors by the Covid-19 pandemic, commercial real estate has bounced back.
 

Office leasing has surpassed pre-pandemic levels, driven by the growth of global capability centres (GCCs) and flexible office spaces. 
 

Cushman & Wakefield reported an all-time high gross lease volume of 72 million square feet (msf) in 2022, up from 68 msf in 2019. Despite high inflation and geopolitical uncertainties, office leasing in 2023 is expected to reach around 64 msf, close to pre-pandemic levels.
 

GCCs, established by multinational companies to leverage India's talent and cost advantages, have significantly boosted office space demand. “Post-Covid, more than 100 new GCCs have opened in India annually, fuelling demand for an additional 10 msf of high-quality office space,” said said Anshul Jain, chief executive India & SE Asia & APAC Talent Representation at Cushman & Wakefield. Data shows 81 new GCCs in 2022, 125 in 2023, and an expected 175 in 2024.
 

During 2020-23, GCCs leased about 72 msf of office space in India’s top six cities, accounting for 39 per cent of total office demand. Vimal Nadar, senior director at Colliers India, a professional services and investment management company, projects that GCCs will lease 45-50 msf of office space in the next two years, contributing around 40 per cent of total demand.
 

GCCs demand high-quality real estate with amenities like digital connectivity and tech-driven buildings. This has led to the development of more advanced office spaces, attracting both multinational corporations and domestic enterprises, said Peush Jain, managing director (Corporate Leasing and Advisory) at real estate consultancy Anarock.
 

Besides GCCs, flex space operators recorded their highest-ever leasing in 2023 at 8.7 msf, representing 15 per cent of total office leasing. This trend is driven by the need for flexible work environments, and companies decentralising office locations, exploring satellite offices in smaller cities to accommodate distributed workforces.
 

Office space designers are also integrating wellness areas and sustainable elements, driven by increased awareness of employee safety and environmental issues. According to JLL, 87 per cent of Indian occupiers aim to have half of their office portfolios powered by renewables by 2030.
 

Swift recovery, changing facade
 

Occupancy levels in commercial real estate had plunged during the pandemic in 2020 and 2021, leading to distressed sales. The recovery has been rapid, with new supply in 2023 being 3-4 times higher than in 2020.
 

However, the retail sector has fundamentally shifted with the acceleration of e-commerce and omnichannel adoption, focusing on enhancing the shopping experience in malls and stores. 
 

“The idea of an immersive and lush shopping experience has elevated the demand for Grade-A malls and high streets,” said Anshul Jain. Nadar added that this has led to increased automation, sustainability, and customer satisfaction.
 

The industrial segment, particularly warehousing, has also rebounded due to rising e-commerce penetration. Real estate consultancy Vestian reported that the warehousing and logistics sector’s absorption in 2023 was 37 msf, 15 per cent higher than in 2019. The overall vacancy rate fell to 15 per cent in 2023 and, according to JLL, it is expected to decrease further to 8 per cent by 2027.
 

The outlook for commercial real estate remains optimistic. 
 

The number of GCCs in India is expected to rise to 1,900 by 2025 from 1,580 currently. Tier-II cities will gain significance as companies expand their geographic reach. The retail market is likely to continue recovering, supported by the expansion of organised retail into smaller cities. 
 

The infrastructure and logistics real estate sectors are also poised for significant growth due to e-commerce expansion and government initiatives like ‘Make in India’.
 

“In the coming years,” said Anshul Jain, “we will see a rise in sustainable office spaces as corporations seek to meet their ESG objectives.”