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?
The COVID pandemic caused cascading changes resulting in the built environment sector rising to the challenge. The biggest change the pandemic has resulted in is in the way we live and work, where the boundaries to a large extent have become blurred. Earlier, during the lockdown, there was no choice but to ‘work from home’, but even in the ‘unlock’ phases - several organizations, keeping employee safety as a priority are opting for remote working from homes. On the other hand, there are other organizations that have resumed operations and are working from their facilities. In order for this to happen, there have been several checks and balances put in place from the perspective of health, safety and security protocols. 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.
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-work without the fear of Covid-19?
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.
What are the emerging trends in commercial real estate? Is the office layout being re-done with technology getting prominence due pandemic?
Without a doubt, the emerging trends in commercial real estate are poised to be digitalization and data. Technology-enabled facilities and personalized experiences are determining tenant preferences especially in light of the pandemic where it has become imperative to seamlessly integrate operations onto the digital universe to ensure work productivity and efficiency of an employee are not impacted, regardless of the location.
The pandemic has accelerated the office layout being enhanced with Technology. Technologies like Artificial Intelligence (AI) and the Internet of Things (IoT) are aiding organizations to safeguard not only the interest of the employee but also of the business objectives.
How is the rental and leasing market shaping up?
The current situation has dampened the sentiments of the entire built environment sector including the rental and leasing market. The advent of the pandemic forced organizations to shut down during the lockdown and implement work from home to impose social distancing. Although the lockdown has been lifted in most places, occupiers are shying away from reverting to pre-COVID office practices until spaces are revamped to ensure the mental and physical well-being of the workforce. Needless to say, international travel restrictions have also resulted in either holding off on commencing or renewing commercial real estate leases. However, given the fact that the virus is here to stay, we should be able to get back on track with the optimal use of data and technology.
Which are the cities that are registering maximum footfall in office-space in this pandemic period? Why?
The pandemic resulted in a sharp decline in office space consumption. The lockdown and social distancing norms enforced to contain the virus led organizations to direct employees to work from home, wherever possible. This state of affairs brought down the number of footfalls to the minimum in office space. However, as the lockdown started to open, office space began to register footfall. As per the latest statistics available in the public domain, Bengaluru leads the maximum footfall in office-space as it has registered a 45% share of the total office space absorption. It is followed by Mumbai at 30% and Hyderabad at 12%. Chennai and Kolkata contribute to 10% and 2% respectively of the total office space absorption during the reviewed quarter.
The cause of increased footfall in office-space in these cities during this pandemic period can be attributed to the several relief measures announced by the government to create thrust in the market as well as to the lockdown lifted in phases. It can also be credited to certain organizations having an infrastructure to support the deployment of data and technology to immediately display agility in dealing with the crisis while ensuring the mental and physical well-being of an employee.
Will it be an end for co-working space or will in emerge stronger? Which are the sub-sectors that are expected to perform better?
Looking ahead, there seems to be a greater likelihood of the co-working space segment coming out stronger. One of the main reasons contributing to its success would be the fact that these are generally extremely spacious areas that will make social distancing norms adherence easy. Another reason is that they are designed to promote an ‘office away from the office’ environment which means they come equipped with digital and technological solutions to facilitate work productivity. From the perspective of corporates, co-working would enable cost optimization by curtailing capital expenditures on a fixed real estate asset. It would provide flexibility in working arrangements as per the requirement of an organization. Apart from co-working, warehousing & logistic and data centers look to be promising sub-sectors of commercial real estate.
What is your take on warehousing & logistic and data centres? How will they shape up in future?
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.
Additionally, warehousing & logistic is expected to move within the realms of city limits to be as close as possible to their customers, resulting in reduced delivery time and saving on transportation costs. The recently announced PM’s Vision of ‘Atmanirbhar Bharat’, will provide a major impetus to local production and sourcing, thereby resulting in a heightened demand for warehousing facilities across geographies.
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?
The government must look at stabilizing the economy by establishing conditions that are appropriate for employment & investment. It can create a more conducive environment that will result in the unlocking of capital. REITs are a highly liquid instrument that can be expected to give stable returns. More so in light of international organizations & investors looking to move out of China’s commercial real estate space and looking at India as a substitute business hub in this part of the world. However, the potential of REITs can only be appreciated if the Government takes necessary moves to balance the tax structure and provides the required relief measures to stoke market sentiments.
How can an environment be created so that investment in commercial real estate is back to the pre-Covid-19 level?
Till the onset of the pandemic, the commercial real estate had seen unprecedented growth throughout the last few years. However, the ambiguity and confusion surrounding lockdown norms across different states resulted in halting the progress of the segment across businesses. To restore investment in commercial real estate to the pre-COVID-19 level, an environment must be created which deploys data and analytics to arrive at fact-based conclusions. Factors such as price point, digitalization, tenant-renewal probability, tenant-default probability, and stringent regulations should govern investment decisions. A clear set of procedures accompanied with structured insights by qualified professionals can ensure fairness and transparency to investors.