Work-from-home trend may significantly damage office space market: Ind-Ra

MUMBAI: Negative demand created by the work-from-home culture along with reduction in fresh leasing activities due to a weaker economy can easily shave 40 per cent off annual demand over the next few years, according to India Ratings and Research (Ind-Ra).

The agency said this can result in over 500 basis points increase in vacancy levels over FY21 to FY23. “The impact on upcoming office space providers is likely to be particularly sharp as these may struggle to let out their upcoming properties.”

Nearly 83 per cent of employees surveyed recently by Accenture favoured a hybrid work model with the ability to work remotely 25 to 75 per cent of time.

Ind-Ra said such a transition to working remotely can seriously hamper office real estate demand as it may allow companies to use a hot desking policy where the same desk may be shared by a number of employees who report to work on different days.

If 2.5 per cent of overall employees are asked to report to work on alternate days and use the hot desking policy, it may result in a net 1.25 per cent reduction in office space required in a country.

On a base of 635 million square feet of office space occupied in top eight cities of India at FYE20, said Ind-Ra, it will result in a negative demand of 7.9 million square feet which is 21 per cent of the average annual demand seen during FY19 to FY20.

“A larger impact of hot desking might shave off several years’ of demand in the short run and create significant hardships for office real estate providers.”

Besides, a number of international companies have announced hybrid work models where the employees will need to report to office only on a few days of the week. Ind-ra said it can be easy to infer that the space that may be subject to hot desking model may be a lot more than 2.5 per cent as envisaged.

Ind-Ra said occupancy at a large real estate investment trust (REIT) focusing on office portfolio declined to 86.8 per cent in 4Q FY21 from 92.2 per cent in 1Q FY21.

Occupancy at another listed REIT declined to 81.8 per cent in 4Q FY21 from 87.1 per cent in 2Q FY21. Occupancies at other listed REITs and companies also declined by around 500 basis points over the last four quarters, said Ind-Ra.