Bentley - YII Conference
9th EPC World Awards 9th EPC World Awards
Commercial Real Estate: Unlocked! Rebooted! Raring to Go

Commercial Real Estate: Unlocked! Rebooted! Raring to Go

The government has started opening up economic activities in phases under strict guidelines. Commercial real estate which was reeling under the impact of Covid-19 induced lockdown has now started to register increase footfalls.

Real estate sector in India is on a continuous sluggish phase. Many a stimulus packages by the government has failed to revive the industry. The only bright spots were the affordable housing and commercial real estate sector. But the ongoing pandemic and the subsequent lockdown has brought the commercial real estate sector to a standstill. Along with the migrants, whose plight were widely publicised in newspapers, TVs and online media, office goers too left their workplace in cities and left for their homes in far-off villages and towns which they considered safe from Covid-19. Now with offices being closed and construction workers leaving their sites in panic, commercial real estate suffered the most.

The fear of contracting Covid-19 prevented the office goers to even venture out of their houses. Covid-19 positive cases increased each passing day. The economy went into doldrums. In the recently released data by the government for the first quarter (April-June) GDP contracted by a massive 23.9 percent year-on-year (YoY), the first GDP contraction in more than 40 years. The first lockdown started from March 24th. The major period of the first quarter was spent in lockdown with hardly any economic activities being conducted. Sector wise data revealed that the construction industry was worst hit with a contraction of 50.3%, followed by the trade, hotel, transport, communication segments, which contracted 47%.

The first lockdown extended across the nation until 3rd May, with a conditional relaxation after 20th April for the regions where the spread has been contained. The conditional relaxation includes resumption of construction activities with caveats. The government allowed construction activities in sites within the limits of municipal areas provided workers are available on sites, and no workers are expected to be brought in from outside. Fortunately, a few good Samaritan realty players have taken good care of their construction labour forces who have not migrated to their villages by providing them food and shelter. The conditional relaxation came in handy. Many of the struck realty projects restarted. “We have already started construction at most of our unfinished project sites because we experienced less remigration of our construction workers. We tried to provide accommodation to as many workers as we can at our sites itself and took necessary preventive measures to keep our people safe there. So by the time restrictions were lifted, we had enough workforces at each of our locations to commence the construction work again. It is imperative to bring comfort to construction labour. So, give them a safe work environment. We have also started Worker Welfare programmes on our sites to make them feel safe. Even during pandemic, we made sure they have all sorts of facilities,” says Ritesh Sachdev, Senior Vice President & Head Commercial Leasing and Asset Management, Tata Realty and Infrastructure.

“It is not the entire labour force that migrated back to their villages; local labour is available. This coupled with increasing usage of technology has reduced need for labour, so at construction sites, things are working at 40 to 55 per cent capacity. There are indications that migrant labour wants to return back, we might see a return to ‘full site operational and working’ scenario by the time the festive season starts – latest by the new year,” says Dr Niranjan Hiranandani, Co-Founder & MD, Hiranandani Groups. By each passing days it was clear vaccines for Covid-19 will take at least a year to develop. The economy was nose driving. Employees, labourers and workers were idling away at home. There were few who were working from home. Covid-19 positive cases were increasing. The economy was in deep slumber. To roll back the economy the government in phases resumed flights, trains, metro train services and inter and intra state movement of passengers. But the fear of contracting Covid-19 held back work forces to rejoin. To ally their fear, government came up with guidelines from time to time to ensure a safe working / operating environment. Office spaces were designed keeping safety of the employees as priority. “The fact is that all will have to adjust to new realities – that of social distancing. Even while many companies may continue WFH model (for a certain percentage of their workforce) for an extended period, they will have to de-densify the cluttered office spaces so as to adhere to the social distancing norms,” says Anuj Puri, Chairman, ANAROCK Property Consultants. Sanitisers, masks, gloves were made mandatory for all employees. Many a corporates increased the health insurance cover of their employees. “The employees' return to workplaces can be ensured by deploying data to help dispel fear and anxiety. Apart from the social distancing norms mentioned before, data can be leveraged to arrive at calculated decision-making processes by providing companies with crucial inputs about returning to the workplace. Data collected through workplace sensors can aide in the optimal utilization of workspaces and can provide the assessment of different options, by using technology to deliver and formulate strategies on how to go forward using these solutions. It can be utilized to implement effective workforce strategies like a distributed workforce on given days and identify gaps in employee experience,” says Nimish Gupta, MD, RICS South Asia.

Slowly getting back to work

Real estate construction works have started though not in full swing following strict guidelines of maintaining social distance, wearing mask and gloves. Real estate players too are offering better living condition with basic necessities for construction workers. Slowly migrant construction workers too have started returning back to cities. The government on its part is planning to utilise approximately one lakh unutilised housing units built under the Jawaharlal Nehru National Urban Renewal Mission and the Rajiv Awas Yojana to provide rental housing as part of its Affordable Rental Housing scheme for migrant workers. “This year, between January and June around 11 million sq ft of commercial space has been committed and I believe another 10 million sq ft plus will be committed in the rest of the year, which means 20 million sq ft - despite lockdown and concerns around WFH will still get committed in India, especially when there is less supply, which is great,” says Ritesh Sachdev. Tata Realty and Infrastructure has already started construction at most of their unfinished project sites. Currently, their three commercial projects are under construction - Intellion Park and Intellion Edge in Gurugram and one in Ghansoli. Intellion Park Gurugram is nearing completion and 8 lac sq ft will get ready by November while remaining 8 lac will be completed by March-April 2021. Intellion Park Navi Mumbai is of 7 mil sq ft, of which half million sq ft will be commencing construction by November. Tata Realty and Infrastructure has 12-14 million sq ft at various stages of planning and development. “The beginning of the next year will also witness the launch of 3 residential projects in Mumbai: a re-launch in Mulund and fresh launches in Andheri and Chembur,” says Ritesh Sachdev. Global investment firm Brookfield has entered into an agreement with RMZ to purchase completed commercial assets portfolio and co-working business of RMZ. Prestige Group is in advance discussions with Blackstone to sell its various commercial assets for an estimated Rs. 12,000-13,500 crore. “Google, for instance, is on an office leasing spree as a follow-up on its massive investment plans in India over the next 5-7 years. The key target cities for the Internet giant include Bengaluru, Hyderabad, and Gurgaon,” says Anuj Puri.

Technology to the Fore

With labour shortages expected to be continued for prolong period, real estate players are increasingly using technology to complete their unfinished projects. “Human interface on construction sites has been reduced over the years. From a time when concrete was mixed at site, we now have ready mix concrete being delivered to sites where construction cranes reduce the need for a large number of labour to carry construction material to floors where construction is happening. Pre-cast and pre-fab sections are time savers as also require lesser numbers of labour on site. So, there are ways and means to speed up the work as also reduce quantum of labour necessary at construction sites, within parameters as are allowed and following Covid-19 guidelines, real estate projects – including commercial - are witnessing ‘work in progress’ with quicker completion each floor’s construction as also lesser time taken for finishing,” says Dr Niranjan Hiranandani. Ritesh Sachdev too agrees that technology is playing a major role in realty project completion. “More and more buildings in precast concrete, steel and composite are coming up. Although there is scope for improvement, handling and lifting of material has seen a lot of mechanization. There has been a consistent shift toward innovative materials and techniques over traditional ones and this level of adoption of technology is only going to improve in the coming years. The latest technological innovations that have captured imagination of construction industry worldwide are Virtual Realty/Robotics, 3D printing and prefab construction. In practical sense, real work in these areas has just taken off. New products and technologies enabling use of robotics to replace manual effort, 3D printed building or building elements and prefab construction are going to define the upcoming decade in the construction industry,” adds Ritesh Sachdev.

Signs of revival

Slowly commercial real estate is picking up pace. To roll back the economy, which in now in a deep slumber, the government is restarting trains, planes and road travels in a phase manner. Employees have started to rejoin office after all these months of working from home. “There was a dip in demand for commercial spaces mostly during the lockdown period when there was no activity due to the pandemic. However, now we are gradually seeing demand for commercial spaces pick up in key cities,” says Anuj Puri. According to JLL India report "Indian Real Estate Market Update Q1 2020", the office market witnessed a net absorption of 8.6 mn sq ft, a decline of 30% y-o-y from the peak observed in Q1 2019. The last such drop in net absorption was observed in Q1 2017; net absorption fell by 60% y-o-y in Q1 2017 post demonetisation in November 2016. The momentum continued in the first two months of 2020 before the pandemic impacted the Indian market in March and several leasing deals in the final stages of negotiation were deferred with occupiers asking for the removal of lock in periods and a downward revision of rents. Moreover, occupiers are adopting conservative leasing strategies and have put up decisions regarding fresh take up of spaces on hold for the next couple of months”.

In major metros and tier-I cities offices are working at less than 50 percent capacity. Majority of the employees are still in their hometown reluctant to come back and prefer working from home. In light of this development and business taking a hit occupiers are keen to renegotiate their rental agreement. “Overall, from the commercial market scenario, we are likely to witness restructuring, de-densification and transformation. We have already seen occupiers start to renegotiate their rental terms, along with the demand for Grade A stock seeing a dip. Commercial real estate demand is expected to take a nosedive over the next two years where businesses will focus more on employee’s well-being and conserving cash. However, despite this projected recovery time, the sector will continue to be the forerunner in bouncing back once rental re-considerations, price negotiations, and property size preferences are arrived at on a case to case basis” says Nimish Gupta. Naveen Nandwani, Managing Director, Commercial Advisory & Transactions, Savills India, says “Despite the current crisis exposing some of the fragility and vulnerabilities of several businesses, the interesting thing is that many are stepping up their game to evolve and adapt to maintain business continuity. Occupiers are re-evaluating their real estate portfolio, and re-engineering them – it comprises of a mix of reductions and renegotiations. We expect global corporates to work out their new strategies over the next 6 months before we see substantial action on the demand side. Offices will continue to flourish albeit with revised space-norms and often in locations that are different than the current patterns”.

Interestingly, during the pandemic period IT-ITeS occupiers drove the pre-commitment activity across most of the major office markets in India. “Mumbai, Delhi-NCR are seeing more footfalls than most other counterparts like Bengaluru, Hyderabad, Pune among others. This is largely because the latter are essentially IT hubs whose major workforce is able to diligently work-from-home” says Anuj Puri. In the first quarter, construction activities were on a complete standstill. This badly affected the leasing and rental market. Arpit Mehrotra, Managing Director, Office Services (South India), Colliers International India, says “During H1 2020, gross leasing declined 36% YOY to 16.7 million sq feet (1.6 million sq meters) across the seven major cities in India. We note that occupiers have been delaying leasing decisions on two accounts first, the majority of the organisations continue to work from home due to spread of Covid-19 infections and occupiers in sectors such as hospitality and small and medium enterprises (SMSEs) who have been financially impacted, and are reconsidering their decisions. Bengaluru led the leasing activity with 32% share in total gross leasing in H1 2020, followed by Delhi-NCR with a share of 16%. During H1 2020, demand from information technology and business process management (IT-BPM) and technology companies accounted for about 52% of the total leasing, up from 36% share in H1 2019. Interestingly, despite an overall decline in gross leasing, leasing by IT-BPM and technology companies rose by about 1.2% YoY. We expect IT-BPM sector to continue its leasing streak, while expecting flexible workspace operators to bring down their expansion. We note return of enquiries by global firms in cities such as Bengaluru, Hyderabad, and Delhi-NCR, infusing optimism in the sector”.

Emerging trends in commercial real estate

It is a reality. In fact a sad reality! Even after close to a year of Covid-19 pandemic, the vaccines are yet in the development stages. Still, a sure-sort cure for Covid-19 is available Work from Home will be a safe alternative which requires huge data of information to be shared between all stakeholders. The industry is witnessing demand for more date centers. As per ANAROCK research, currently, data centres in the top 8 cities occupy 7.5 mn sq ft space and an additional 10 mn sq ft space is likely to be added over the next 2-3 years. Immediately after India went into a lockdown mode due to Covid-19, there was a 25-35% increase in data centre capacity usage as companies began to overhaul their digital infrastructure to deal with the new work environment.

“In the post-pandemic context, the increase in internet usage has driven the Internet of Things (IoT) and cloud-based services to take center stage. This has resulted in data centers attracting high investor interest. At the same time, the rise of e-Commerce as the preferred channel for consumer consumption has pushed warehousing & logistic into the limelight. With the ‘new normal’ settling in, the future looks bright for these segments. The pandemic with its widespread implications across the sector has highlighted the significance and relevance of precipitating the adoption and use of technology and data. This will continue unabated and eventually result in a predominance of data centers,” says Nimish Gupta.

The warehousing and logistics sector emerged stronger during the lockdown period. Consumers’ preference shifted from physical check-and-buy to click-and-buy. This has given impetus to the warehousing and logistics sector. “As of 2019, top 8 cities in India accounted for nearly 77 mn sf of warehousing stock in India with a rental range of USD 0.18- 0.32/sf/month. Considering that e-commerce is bound to flourish in the post-Covid regime even further, there will be a rise in the online businesses which may lead to a surge in new warehousing demand along with a rising trend of multi-level warehouses within the city limits,” says Anuj Puri.

The government continuous push for ‘Make in India’ and ‘Atmanirbhar Bharat’ is fueling the growth of Industrial sector in India. Furthermore, manufacturers are looking for alternative to China for shifting their manufacturing base. “The outlook for the manufacturing and industrial sector is brighter than for most and is seen as the new sunrise sectors. The industrial sector is set to benefit as multinationals seek to diversify their manufacturing locations. India is emerging as an alternate manufacturing investment destination for China. At this point, the world is looking at China plus one strategy for manufacturing solutions. There are over 1,000 foreign manufacturing companies that are planning to shift their manufacturing base to India from China, out of which 300 companies are actively pursuing production plans in mobiles, electronics, medical devices and textiles. This would lead to an increased demand for warehousing spaces across Tier 2 and Tier 3 cities of India. Further, existing growth potential, the government’s clear strategy, strong leadership and India’s cost advantage will continue to help in attracting sizeable foreign investment into the manufacturing sector,” says Naveen Nandwani.

Down but not out

Unlike the residential real estate, commercial real estate is well organized. The government is well aware to kick start the economy, infrastructure and construction work has to be get going. Even during the lockdown, railways and road & highways construction were in progress. Scientists and medical fraternities are working round the clock come up with a vaccine to cure Covid-19. The government has ramped-up medical infrastructure to cater to Covid-19 positive patients. The fatality rate of Covid-19 in India is reducing drastically. Inter-state and intra-state passenger has been allowed with caveat. Employees are slowly returning back to office. There is an increase in office footfalls compare to Q1. “Contrary to the global financial meltdown, the solution for the ongoing crisis lies in social and scientific intervention. Until then, businesses are left with no choice but to adjust and prepare for the new norm. While several large corporates have already adopted agile work formats, this trend will get accelerated for practical and safety reasons. This could lead to reduction in overall space requirements for new offices. Even as work from home finds more acceptance in the corporate, it will not replace the importance and need of high quality and modern workplaces which over the years has proved to be imperative for attracting and retaining talent,” says Naveen Nandwani. The commercial real estate is down but not out. Sales and leasing deal are slowly picking momentum.

  • About Us

    EPC World Media Group is a one stop knowledge information hub for Infrastructure, EPC and Construction sector. It strives to promote, propagate and assist the decision and policy makers from government and private organizations along with the technology developers and service providers to enhance and develop their capabilities. EPC World Media facilitates knowledge transfer to grassroots and strengthens their productivity.....

    Read More.....
  • Featured Videos

  • Connect Us