Holding around two decades of experience, Rahul is an inspiration for people to learn, develop and grow. As a part of India Leadership Council, he is engaged in developing and executing business strategies to achieve short & long term goals.

As I write this piece today, my biggest source of happiness comes from the fact that I am back in my office after working from home for almost 50 days. But before all of us, from team Bangalore, even stepped into our office, our administration lead by some extremely talented people had prepared a detailed SOP, presented it to various groups any times over and made sure that all of us follow the guidelines to be able to stay safe and healthy.

Pre Covid-19 era, I could have never imagined that getting back-to-work could present so many different challenges. Issues like temperature checks and social distancing rules, and sanitizers are just starters, most office layouts will need overhauling due to the need to provide more space between desks as an obvious measure for distancing. Perhaps there will be drastic changes in terms of the old cubicle model, HVAC systems, work shifts and many more.

There are different times, and these are difficult times. While the global pandemic wreaks havoc on the economies of the world, India with its over 1.3 billion population is left struggling to cope with a strict lockdown and the impact of the same on the economy. With the global economy sliding into a depression, the real estate sector, could be in midst of some severe slowdown.

Let me, in this piece, closely examine the impact of the slowdown on each segment and also point out the green shoots that we see emerging

To begin with, the residential segment, in most markets, have seen inquiry levels back between 25-35 percent. While it is inevitable that a large number of employees will end up working from home for most part of this year, this could lead to a shift in home buyers preferences. To begin with, some may choose to move further to peripheral location in order to buy larger homes. Demand for homes with a study rooms, larger balconies or family spaces or even a residential community with larger amenities, open spaces will be the new normal.

While, the fundamentals of demand remain positive, attractive interest rate, attractive offers and price drop guarantees are positives, the looming fear of pay cuts and job loss is expected to delay these buying decisions. This fear could push the demand for rental housing in the short term.

Office space occupiers remain optimistic about their head count growth and commitment to additional space, however, the lock-down has forced most to hit the pause button. While, many occupiers have postponed major leasing decisions, some other have gone ahead with RFP or even signing digital LOIs and then there are others who are even more positive and believe that more headcounts would start moving to India, hence are planning ahead. Occupiers are keenly evaluating expansion given that they’ll need more space to accommodate the same number of people owing to the distancing measures. The challenge is, shortage of labour and supply chain disruption globally. This is expected to delay construction and fit out completion.

That brings me to the next most talked about segment, the co-working space,

As far as investments & sale transactions are concerned, investors continue to look at core asset opportunities that provide predictable annuity income through long lock in periods of tenancy

which had seen 10-15 percent of total office space absorption in the last two years.

In short term, with social distancing becoming a new norm, most offices will need to de-densify, till such time as those changes have been incorporated in the workspace, there will be a need for an alternate, readily available space. A number of companies will emphasise on keeping cost under check, and finally, some may prefer offering employees workspaces/seats close to their homes, creating immediate requirement of space. These requirements will help the Co-working segment. Many expect major consolidation in co-working space, some small - midsized players may have to wind up, however, for most prominent players, this seems unlikely especially given the quality & variety, layout of the spaces being offered and offerings in almost all cases differ hugely across the board. It won’t be prudent for a player to take over another and spend on refurbishing the space.

As far as investments & sale transactions are concerned, investors continue to look at core asset opportunities that provide predictable annuity income through long lock in periods of tenancy. However, the aggression of institutional investors in acquiring core assets may show a moderation in the short term and some transactions may show a marginal increase in investment yields in favour of the investor. Build to suit or green field projects are not as preferred as before as the impact of Covid-19 on office absorption rates is expected to a degree of 25-30 percent this year. As a result, we expect a decrease in investor interest in ‘forward sale’ transactions especially those that are being speculatively built.

My City
Market fundamentals continue to remain strong. Bangalore witnessed a huge mismatch in demand and supply for over the last 5 years, the vacancy levels. While the overall activity might remain tepid in 2020, a major correction in rentals is unlikely.

Office leasing market in Bengaluru has remained a supply starved market for over two years now, 2020 seems no different. Low supply of Grade-A office space and limited new completions planned for 2020 (or even H1 of 2021); in addition, the ongoing lock-down, limited availability of labour force and fewer active funds, is bound to have an adverse impact on the situation - a large amount of construction is expected to get pushed to later quarters. Even though the demand for office space is expected to remain low, the rental reduction looks unlikely given that the demand-supply fundamentals have remained strong in favour of the developer. Most leases that were signed prior to mid-2019, are lower by a minimum of 10 percent compared to the last signed deals, leases signed in or prior to 2018 are at least 20 percent lower than the last transaction signed in these markets. For a correction to take place, a deal must be recorded at a lower than last deal value which seems unlikely given the above dynamics.

The Green Shoots
Warehousing is possibly the only segment of real estate that’s has remained resilient and stands a clear chance to possibly become the only segment which will grow its foot print as well as attract buyers hence becoming a more preferred asset class.

Warehousing for Agriculture produce, cold storage, supply chain solutions and a lot more investment by Indian retailers in domestic manufacturing which will surely give this sector a further boost.

The reason for this is simple: High demand for online orders that will give rise to need for faster delivery, which could create a need for another type of asset class – a neighborhood warehouse. With e-Commerce growing significantly and spike in same-day delivery orders, companies will look for smaller warehouses in close proximity of residential zones instead of having very large ones, very far away from the city centre.

Current situation is unlike any situation this generation has ever witnessed, no one is aware of where and how this situation will end. Healthcare has taken the front seat, we’ll see a lot more spending here.

From a long term perspective, there no doubt about a number of changes in how we plan, how we work or even the buying behaviour itself - life as we knew it, seem to have changed forever.

It looks unlikely that we’ll get back to pre-Covid life ever; instead, we must create new rules for us to live. India’s response to the current situation has possibly been the best amongst many countries globally; it was extremely bold and stringent. Government followed the very basic approach ‘prevention is better than cure’. This is appreciated by corporates world over.