The prolonged lockdown and mass shift towards remote working by corporates and scores of companies had resulted in a dip in demand for commercial and office spaces across the country, particularly in metro cities. However, market and real estate experts predict that there could be a gradual demand for commercial spaces in key metro cities of the country.
During the initial days of the pandemic, companies leapfrogged to adapt to the new work from home (WFH) model with widespread anticipation that office space demand will see major decline. The shift to WFH by several companies also gave office space tenants the leeway to bargain with their landlords as many felt that as an increasing number of people started working remotely, there was no need to have a larger office space and pay continuous rentals.
“Till the Covid-19 crisis struck, the office market in India had been witnessing substantial growth, both in terms of leasing volume and institutional investment. However, things now stand at a critical juncture with revenue streams of most businesses being impacted adversely by the pandemic induced lockdowns. As a result, decisions regarding space take up have been delayed for the most part and there might be renegotiation of lease contracts going forward,” observed Shrinivas Rao, CEO-APAC, Vestian Global Workplace Services.
At the same time, a number of experts hope that things may change and the market may pick up at least in the next fiscal.
Rao feels that despite the merits of WFH, there is an ardent need for social connection for a business to perform efficiently and thrive in the long term, along with parameters like productivity, connectivity and data security that need careful consideration over time. “While the office market will undoubtedly witness a decline in absorption on account of the Covid-19 crisis, it is estimated to be short to medium term and the market is expected to pick up in the next fiscal. Workplaces, in essence, would always remain a part of the social and business fabric. Besides, the commercial real estate of the country is ruled by strong fundamentals and it holds the potential to bounce back, given the strong IT eco-system in place and the continued interest of investors,” pointed out Rao.
Real estate firm ANAROCK Property Consultants believe that conditions are expected to pick up in key cities of India as Google, for instance, is currently 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 Google include Bengaluru, Hyderabad, and Gurugram, and this trend is likely to gather pace in the upcoming quarter. “The current trend will exist only for a short term or until Covid-19 uncertainties exist. As soon as the vaccine hopefully before the end of the year is out, we may again see pent up demand for commercial properties. The fact is that tenants have to adjust to new realities—that of social distancing. Even while many companies may continue the 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. This essentially means that many may not actually give up on major real estate space. Also, many would also like to take advantage of the negotiated rentals now and stick on to their spaces,” remarked Anuj Puri, Chairman—ANAROCK Property Consultants.
Market analysts feel that it is highly unlikely that virtual workspaces or WFH will completely replace office spaces in the near future. Even as the dynamics of the workspace evolve, enabled by the boom in technology, one still needs to factor-in physical offices as the predominant work arena. “Office spaces will continue to remain dominant for collaborations, closed door meetings, data or information protection, speed in brainstorming, and multiple other managerial and operations issues. One cannot also ignore the fact that apart from technical and connectivity issues, not everyone has equitable facilities or work set-up at home that could support an intense eight hour workday, five days a week. Our understanding and assessment lead us to believe that WFH may become a more acceptable norm going forward. But we do not see any significant impact on office demand in the future,” said Anurag Mathur, CEO, Savills India.
Similarly, many other real estate experts feel that it may be wrong to project or assume the future of commercial real estate based on the current pandemic scenario. The impact can be fully felt during the onset of the pandemic, soon it will all play out, as real life and real businesses are far larger than Covid-19. While there could be some long-term imprints left like strengthening of the philosophy of WFH, workplace hygiene, social distancing and virtual conferences will continue in the long run.
The impact on office space absorption will be minimal and things are expected to be back on the rails sooner than later. The impact on commercial retail real estate could last longer probably for a couple of more quarters before it tapers down. The advent of Covid-19 vaccines would be the key to the trigger for a return to normalcy. While in the short-run, everyone will have to take measured steps every time, there need be no undue concern in the medium term,” pointed out R. Kumar, Chairman and MD of Navin's, a Chennai-based real estate developer and property consultancy.
Experts from the co-working space have also exuded confidence that things will change for the better and this crisis will be a short-term one. “The Covid-19 pandemic has accelerated the shift to flexible workspaces with businesses of all sizes looking to manage cash flows effectively by moving costs to a variable model. Corporates and large enterprises will avoid high capital expenditures and look towards flexible working spaces to expand businesses. Flexible workspaces will also be in demand from the fact that companies will have to practice social distancing within their campuses, which means they might have to station some employees in different locations. We are currently operational with 97 per cent occupancy across centres. However, considering the current scenario, 40 to 50 per cent of our clients have come back to work space with a standard operating system,” said Manas Mehrotra, Chairman, 315Work Avenue, a co-working company.