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The information technology (IT) sector, which was once a key driver of demand for office spaces, continues to see a decline in its share in leasing transactions. According to the latest data by property consultant Knight Frank India, in second half of calendar year 2021 the share of IT sector in office transactions has declined to 27% from 41% in the same period last year.
Increased adoption of the work from home culture post the pandemic led IT companies to postpone their decision to lease office spaces, especially after a severe second wave of Covid hit the country in March 2021.
Even though IT was the largest contributor to total office transactions for Grade A properties seen in H22021, the decline in its share in just one year is steep. This has clearly, weighed on office rentals. On a year-on-year basis, rentals declined by 7.6% in 2021, said the Knight Frank report.
While some IT companies have started calling their employees to office in a gradual manner, due to uncertainty relating to the new Omicron variant a complete return to office doesn't seem likely soon. In the meantime, IT companies have adopted a hybrid working model, which is a combination of working from office and remotely. This means that office vacancies would remain elevated in the short-term. So, real estate analysts do not expect office rentals to see a meaningful improvement in the near-term. In this backdrop, commentary by the managements of listed REITs on rentals and renewal of office leases in Q3FY22 one of the key things to watch out for.
That said, a glimmer of hope for office demand does emerge from the robust hiring that IT has seen in recent quarters. Approximately 0.26 mn employees have been hired by the top five IT companies in India during April 2020 to September 2021 period, said the Knight Frank report dated 5 January. The report further added that incremental office space take up expected from the hiring by just the top five IT companies in India is estimated to be at around 12 million square feet.
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