Recovery in office rental demand bodes well for Embassy Office Parks REIT

NEW DELHI: Office rental prospects are expected to improve, with more companies asking employees to return to the office. This is the crucial takeaway from the recent Embassy Office Parks REIT analyst meeting.

Company management told analysts it expects a robust recovery in office leasing from FY23, helped by an increase in physical occupancy levels. Strong hiring by global captive centers (GCCs) and IT product companies would drive that demand, management said. Investors should note that the two segments mentioned above represent 70% of the total space leased by Embassy REIT. Bengaluru is likely to benefit the most from the increased momentum in office leasing as it constitutes 60% of the total RFP currently launched.

Management said that based on its discussions with occupants, physical occupancy is expected to improve to 20-25% in April and 40-45% over the next two quarters. Currently, physical occupancy is 10 to 15 percent, management said.

Investors would expect the company to have raised its rental guidance for FY23 to 1 million square feet (msf) from 0.4 msf in Q3FY22. In its last interaction with analysts, management expressed confidence in achieving its revised guidance. The company is also exploring various organic and inorganic expansion opportunities.

Management added that its hotel vertical had seen a revival, driven by the recovery in business travel. Management pointed out that for its recently opened Hilton Garden Inn, 50-60 corporate accounts have already been signed and another 50 corporate accounts are in the pipeline.

Meanwhile, shares of the REIT manager are up about 10% so far this calendar year. Analysts say the stock’s continued rise will be driven by the pace of the recovery in office leasing and its impact on occupancy levels.

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