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Market Updates

Office space leasing gaining ground in Tier-II cities

Office space leasing gaining ground in Tier-II cities

Compared to metro cities, there is evidently a rise in the office market in Tier-II cities directly attributable to robust demand from the IT/ITeS sector, affordable rentals, and the exponential expansion of start-ups locally in recent years. Demand is also fueled by the manufacturing and industrial sectors.

Notably, office rentals in major cities increased by double digits between FY18 and FY21. During this time, office rentals in Tier-II cities such as Zirakpur stayed relatively flat, while Chandigarh city saw a modest increase in rental rates. Commercial space sales and leasing have taken a hit during COVID-19, but if developers target the right sectors, they will still tap into demand for their space.

It is generally known that during the boom period, a sentiment-driven upswing resulted in unprecedented demand, resulting in a severe under supply crisis in major cities. Developers planned and built massive projects searching for development prospects in embryonic and rising economies. Exaggerated projections of future growth can result in the hasty development of larger projects. Understanding the market demand is critical to success. In contrast, the market in Tier-II cities worked as per the demand and need only, which stopped these markets from getting oversupply.

The BFSI (Banking, Financial Services, and Insurance) and IT/ITES sectors — the two most major office space occupiers in the country — have been the hardest hit by the pandemic. It is expected to be slightly sceptical about looking for expensive metro cities in the medium run; this is because the BFSI industry has been affected the hardest by the current circumstances, and IT spending for businesses will not grow until the economy improves. At this point, Tier-II cities are emerging as victors, riding high on high-quality office infrastructure and competitive lease agreements.

A variety of financial models for various company ideas have been developed in response to current market sentiment. We’re working on these models at Motia, product by product, because the market is very competitive. We’re also working on a revenue-sharing model, which is a market necessity in the future. We must recognise that commercial facilities, particularly in office leasing, are not the same as residential spaces.

Developers must move tactically if they want to see growth in slow demand. To move their products, office space owners must target Indian enterprises. Insurance, education, telecommunications, and infrastructure are some of the sectors that can be targeted because they are closely related to commercial activity in India. Companies with a target market or concentration in India would require extra office space in the next six months.

There is no denying that COVID-19 has made its way into the real estate sector affecting every growth aspect. As a result, the demand for commercial space for rent in Metros has decreased, benefiting Tier-II cities like Zirakpur. Big-ticket corporations like Reliance Smart ,TVS, Haier, and USHA have recently taken up office at Motia’s Royal Business Park in Zirakpur. While demand for commercial space in metro areas may be low, we are receiving a lot of inquiries. Most companies have revised their workplace strategies and are looking at Tier-II cities for better functioning due to a better grasp of employee expectations and a hybrid form of working best suited to them.

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