In the last five months a new world order has emerged wherein work from home has become the norm which is unlikely to end anytime soon. What is the current scenario of commercial real estate in India? When is the market going to bounce back?
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. 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. During the initial days of the pandemic, companies leapfrogged to adapt to the new work-from-home model with widespread anticipation that office space demand will see major decline. But current trends suggest otherwise.
PSUs, Corporates, even mid-sized and small organisations are persuading employees to re-join work but the fear of Covid-19 is holding them back. How can an environment be created so that employees can be back-to-office without the fear of Covid-19?
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. From 80 sq. ft. space per employee it is being increased to 120-130 sq. ft. per employee. Safety and hygiene have become of prime importance. Many of these will be permanent changes and will help in gaining confidence of employees.
What are the emerging trends in commercial real estate? Is the office layout being re-done with technology getting prominence due to pandemic?
Demand for flexible office spaces is increasing and will continue to drive demand over the next quarters. Large occupiers are again seen to be de-centralizing and in closer proximity to residential spaces for their employees. Interior fit-outs are being adjusted keeping social distancing norms in mind. Building management is gradually getting fully automated in order to give a touchless experience.
How is the rental and leasing market shaping up?
As per ANAROCK research, before Covid-19, the average rental yield of commercial properties was anywhere between 6-10% while for a residential property it was merely 1.5-3.5%. However, with demand for commercial properties going down amidst the pandemic we are seeing a marginal dip in commercial rental yields.
Which are the cities that are registering maximum footfall in office-space in this pandemic period? Why?
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.
Will it be an end for co-working space or will it emerge stronger? Which are the sub-sectors that are expected to perform better?
As mentioned earlier, demand for flexible office spaces is likely to see increased demand, largely because there is a possibility that start-ups that had occupied spaces may want to move out of their fixed rented spaces and instead work out of these co-working spaces depending on their need.
Covid-19 may reshape the future of the senior living segment in India, with demand for such homes set to zoom up amid the present uncertainties. There is only a limited supply in this segment, via 55 projects by the top 12 players in this segment - 60% in tier 2 cities and the remaining 40% in Tier 1 cities, as per ANAROCK research.
What is your take on warehousing & logistic and data centres? How will they shape up in future?
The massive digital push initiated by the Covid-19 pandemic has been lucrative for data centres, which can still deliver an annual rental yield of 10-14%. The key leading cities include Mumbai, Chennai, Bengaluru and Hyderabad, among others.
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.
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.
Commercial real estate was the only bright spot in the stagnant real estate sector in India. Now with extensions in lockdown, commercial realty has taken a hit. How can the government step-in to propel the sector?
Even before Covid-19 came in, the govt had taken multiple measures to help revive the staggering economy – the main being the cut in corporate rate tax and reduction in minimum alternate tax (MAT) to 15% from previous 18.5%. Corporate tax cut – from 30% earlier to 25.75% now - put India at par with many of its Asian peers and thus aimed to be a major draw for foreign investors who shied away from entering India due to high taxations.
As for cut in MAT, it was good for SEZ developers. Even though the SEZs did fairly well over the FY18-19, there was demand for MAT and DDT to be scrapped or at best reduced for more better results. The move was aimed to push demand in key sectors including commercial and logistics & warehousing.