COVID-19: Emerging trends in Office Real Estate Sector

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The current COVID-19 crisis has affected every person and business entirely. Every business whether it could be smaller or larger is hit hardest in times of crisis. As economic activities got interrupted following a nationwide lockdown, the fallouts began to turn out in an otherwise buoyant office real estate.

Due to uncertainty, larger organizations are postponing key leasing decisions. Despite estate agents trying out the digital way, aggregate sales & leasing activities have fallen. The newly emerging trends will help to have an increase in warehousing growth.

Rental Concessions and Revisits: As most of the businesses have been interrupted, organizations will ask for rental concessions or deferments with their landlords. Also, businesses will ask for rental revisits in the next 2-3 months. Rents constitute 5-9% of the topline or revenues. As business activities have been interrupted, organizations will revisit their books and accounts to calculate new numbers. Accordingly, they will negotiate on rentals. While in many cases landlords will act by work on negotiated terms, in some cases, it might be inconclusive, thereby resulting in exits. In general. the industry goes to work out with a better number of structured solutions for continuity and exits.

Refurbishments and decentralization: Occupiers have a strong commitment towards building a habitat/working space that reflects intrinsically on the employees and owners.

Currently in labor-intensive service industries such as IT/ ITeS, BFSI, etc, per person, usable space is mostly 30-45 per sq. ft. However, because of regulations like more social distancing & healthier working environments, such organizations will be assigned to allot larger space. Although existing office spaces cannot be enlarged, organizations need to redesign and reorganize their existing space. 

New Products in Market: As market dynamics evolve, so will be the developer’s contribution. Developers are expected to give extra benefits such as Payment plans with escrow mechanisms, One Year Free Common Area Maintenance (CAM), lease assistance, assured rentals, Re Planning the floor plan with smaller units to mobilize better if that’s possible depending upon approval authority and accordingly looking into the services side, etc. to incentivize more leasing activities.

The decrease in value of Rupee & the Rise of NRIs: Despite the slowdown, NRIs will still deepen their foothold in the commercial Indian real estate. The value of rupee has also decreased by 10% in the past 12 months. Amidst global contingencies, many NRIs are trying to find safer & smarter investment options. Commercial land with recurring rental income & smarter mid-term appreciation potential will fit into the wants of the expatriate class. Prosperous NRIs will even look out for portfolio investments.

A Slowdown is inevitable:  As per research by 360 Realtor’s business intelligence unit, total new leasing activities are estimated to be down by over 50% in FY 21. Likewise, a rent compression of 10-25% is predicted for 2-3 quarters in mid-to-large size areas depending upon locations. All the stakeholders – real estate companies, investors & landlords got to know it and do their business scenario planning accordingly.

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