According to ICRA, the outlook for commercial real estate in 2022-2023 will be stable in both the office and retail mall segments. The improvement in rental incomes, backed by contractual escalations in rentals and a strong rebound in trading density, prompted a change in the outlook for retail malls from Negative to Stable. Rental income for mall operators is expected to exceed pre-covid levels in FY2023, owing to contractual rent increases and a strong rebound in trading density. The relaxation of multiplex occupancies and the release of multiple big-budget films, as well as improved footfalls and a sharp recovery in retail consumption, are the demand drivers for retail malls, according to the rating agency.The outlook for office space remains stable, owing to the resumption of back-to-office plans; robust hiring in the tech sector, which is experiencing strong growth, as well as expected growth from global capability centres (GCC).
“Footfalls are expected to return to pre-Covid levels in FY2023, but average spend per footfall is likely to moderate slightly compared to FY2021-FY022. Mall rental income is expected to increase by 4-6 percent in FY2023 compared to FY2020. On a contracted basis in FY2022, revenue is expected to grow by 45 percent Y-o-Y in FY2023, supporting an increase in operating profitability to around 60-70 percent in FY2023 (similar to pre-Covid levels) from 45-55 percent in FY2021 at the peak of the pandemic. The debt-to-OPBDITA ratio is expected to fall to 6x-8x in FY2023, down from >12x in FY2021, with OPBDITA expected to improve as various operating metrics return to pre-pandemic levels, according to Mathew Kurian Eranat, Vice President.
He also stated that the debt service coverage ratio, which fell below one in FY2021- FY2022, is expected to rise to 1.10-1.20x in FY2023, owing to better rental recoveries. Trading values are expected to exceed pre-Covid levels in FY2023 as well. Despite an increase in average spend per footfall that partially offset the decline in footfalls, trading value was significantly impacted in FY2021 and FY2022 due to pandemic-induced lockdowns and restrictions. On the other hand, if there are any severe future Covid waves that result in state and federal government restrictions, demand growth could be harmed. Commercial office net absorption is expected to increase to 28 million sq ft in 2022 from 20 million sq ft in 2018.This sub-net segment’s absorption is expected to increase to 28 million sq ft in 2022, up from 20 million sq ft and 19 million sq ft in 2021 and 2020, respectively. While the pandemic impacted net absorption in 2020 and 2021, it is expected to improve in the current calendar year, owing to the resumption of back-to-office plans and corporate hiring growth.