Companies renewing office leases ahead of expiry to cap costs

Companies renewing office leases ahead of expiry to cap costs

November 25, 2019 in Real Estate News

Occupancy levels in Indian commercial real estate have been rising over the last few years on demand from new players in ecommerce, healthcare and technology, apart from existing demand from the BFSI sector. Data shows that leasing in the first th..
Robust demand for Indian commercial real estate and rising rentals are pushing companies to renew lease deals ahead of expiry, as they seek to future-proof their businesses against cost escalation, according to a real estate advisory firm.
This office space precommitment activity is primarily being driven by technology and banking, financial services and insurance (BFSI) firms, said Gautam Saraf, managing director, Mumbai, Cushman & Wakefield.
“Falling vacancy levels and rising rentals due to healthy demand for commercial real estate across key markets are prompting occupiers to act and enter agreements for their future space requirement,” Saraf told ET. “It’s a win-win scenario for both occupiers and the project developers, ensuring good space take-up and cost efficiency.”
Occupancy levels in Indian commercial real estate have been rising over the last few years on demand from new players in ecommerce, healthcare and technology, apart from existing demand from the BFSI sector. Data shows that leasing in the first three quarters of 2019 has inched closer to the full-year performance level of 2018.

Office space takeup is expected to be at an all-time high this year — driven by tech corporates that account for about a third of the leasing activity—against the peak of 49 million sq ft last year.
A recent instance of a high-value pre-commitment deal is global investment bank Morgan Stanley entering into an agreement to lease nearly 800,000 sq ft of commercial space in Oberoi Realty’s under-construction Commerz project in the Goregaon suburb of Mumbai.
A recent instance of a high-value pre-commitment deal is global investment bank Morgan Stanley entering into an agreement to lease nearly 800,000 sq ft of commercial space in Oberoi Realty’s under-construction Commerz project in the Goregaon suburb of Mumbai.
Also this year, in one of the biggest office space transactions, US multinational investment bank and financial services company Bank of America’s offshore delivery arm picked up nearly 500,000 sq ft of office space in DLF and GIC’s commercial complex DLF Cyber Park in Gurgaon on a long-term lease. This deal was also sealed when the complex was under-construction and nearing completion.
“With 11 million sq ft in DLF Downtown Gurgaon, with the 7 million sq ft in Taramani in Chennai, we are well positioned to preleasing spaces across geographies. The testament to this is near 100% preleasing in DLF Cyber Park in Gurgaon and the four blocks of about 1.6 million sq ft sf completed recently in DLF Cybercity, Chennai,” said Sriram Khattar, managing director, DLF Rental Business.
“Preleasing has taken place to large marquee multinationals. In fact, the 2.5 million sq ft DLF Cyber Park in Gurgaon is fully preleased to about a dozen high-quality multinationals.”

In Bengaluru, precommitments formed 40.2% of commercial deals so far this year, as against 36.5% in the full year 2018.
In Delhi-NCR, too, such deals have risen to 26.8% so far in 2019 as against 12.3% in 2018, according to Cushman & Wakefield data. Pre-leasing activity touched 5.9 million sq ft in the first half of 2019, almost twice the pre-leasing numbers in the corresponding year-ago period.
Healthcare products maker Abbott India also picked up an under-construction building with over 160,000 sq ft of built-up area in Mumbai’s Andheri to set up an innovation and development centre.
Several companies are also renewing leases much ahead of expiries to get the benefit of locking rentals at a lower level.

Japanese financial services major Nomura Holdings has entered into an agreement with Brookfield Asset Management for renewal of its lease for the over 450,000-sq ft office space it occupies in Winchester commercial tower in Mumbai two years ahead of its expiry. The lease was due for expiry in 2021, but Nomura has reset it for 10 years. Nomura will be paying rentals of Rs 135 per sq ft a month for the office space with effect from 2021.

According to developers, IT/ ITeS, ecommerce and new-age companies are looking to expand in good micro-locations in safe, compliant and sustainable projects of developers who are ready to walk the extra mile to ensure higher employee satisfaction and efficiency.
sources: realty.economictimes.indiatimes.com

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