The underlying fundamentals for office volume are hiring trends, with the larger IT services industry being the key driver. Jefferies’ summary of tech majors hiring levels shows tech industry hiring has been strong through Covid, with fiscal 2012 seeing record hiring – nearly 3 times previous average levels.
“We estimate that the strong tech hiring Work from home (WFH) has already baked into 15% permanent shifts in key tech office spaces since the end of 2020, and thus builds in long-term flexibility, and the reopening of REITs plays. As the return to office drives higher occupancy and rents over 2022-23,” the note said.
Global brokerage launches REIT stock coverage on Embassy REITs with a target price of 418, and Mindspace REIT (TP: 382) With Buy Rating.
Mindspace’s 24.1 MSF’s operational office portfolio is diversified across four cities, providing exposure to both IT outsourcing and India’s business-focused tenants. Meanwhile, the embassy is India’s largest REIT With an operating office portfolio of 33.6msf, leased primarily to a marquee international clients.
“As the return to office plays out, we expect an increase in office demand. Nonetheless, we expect a hybrid model to emerge in the long term, particularly for key tech-driven job industries/profiles. Several IT majors, both Indian and MNCs, have already talked about long-term hybrid action plans, and we believe it is important to incorporate its impact into long-term office demand-supply expectations, Jefferies said.
60-70% of Indian office demand is driven by the tech outsourcing sector, and the recruitment boom at record levels in FY22 created a fundamentally strong position for office demand. Offices are now reopening and as employees return, the imperative to lease new space will pick up pace.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.