Is there any hope left for commercial realty post COVID-19?

real estate, commercial real estate, post COVID-19, real estate in India, office spaces, IT Parks, data centres,Around 10 million sq.ft is likely to be occupied by the Data Centres in the next 24-36 months.

The commercial real estate in India was showing sturdy growth until the Covid-19 pandemic hit the globe. The unsold inventory was getting acquired due to continuous demand, especially in the office space, business parks and IT parks. The Covid-19 pandemic has changed the people’s mindset and the overall outlook towards work culture which has convinced them that work from home is the next way of functioning. However, this perception is just an impermanent phenomenon for the next 12-18 months hoping the vaccine will be out soon.

Can any organization, small or large, operate at its best to deliver the targeted output without a proper office space? This is the question to contemplate. There is an increasing demand for office space which large corporates are acquiring as the current economic scenario is an opportunity to conclude the transaction at a discounted price for bulk office spaces. Though mid-size companies and the MSME sector are downsizing their office space requirement and workforce, there is an ongoing demand for small and midsize office space as well. Every market condition, whether it is heading upwards or slowing down, has its correct pricing. The seller/lessor needs to target the right clients for the same. The potential customer for 5000 Sq.Ft office space is the one who is currently occupying 10,000 Sq.Ft and is on the verge of reducing its space requirement. Property owners need accurate consultancy from their brokers who should be qualified professionals, skilled and knowledgeable.

India is becoming a hub for large office space requirements. Multinational companies are eyeing India as a hub for Data Centre Offices, especially in cities like Mumbai, Pune, Delhi, Bangalore, Hyderabad and Chennai. Around 10 million sq.ft is likely to be occupied by the Data Centres in the next 24-36 months. From May’20 to July’20, India has witnessed deals of approximately 11 million Sq.Ft for commercial real estate and another 8 million Sq.Ft is expected to be absorbed in the future. And, finally, Real Estate Investment Trust (REIT) is gaining momentum in India after the first IPO of Embassy Office Park REIT, followed by Mindspace Business Park REIT. Corporate giant Tata Realty & Infrastructure (TRIL) is planning to list its Real Estate Investment Trust (REIT) with around 20 million sq ft of commercial assets in the next couple of years. Some of the prominent transactions of large commercial real estate concluded in India during this pandemic are:

The other segments of commercial real estate like logistic parks, warehousing, retail shop and showrooms, and mall properties have their markets to be analyzed. India, being one of the preferred destinations by multinational companies, has tremendous growth potential in warehousing and logistics parks in the extended industrial belt and land banks of metro cities. There is a rising demand in the industrial warehousing and logistic parks segment for the next 36 months. Some of the developers and owners of warehousing segments are offering lucrative pre-leased deals for investors to earn a return on investment of around 8-10% per annum.

Major challenges will be faced by retail shops, showrooms and mall properties. Owners may struggle to lease shops, showrooms and mall properties. Reduction in rental pricing is the option to sustain. Changing business dynamics in the retail segment is the need of the hour. Buying preferences of consumers have already shifted towards e-commerce platforms, be it basic household groceries to luxurious products like SMART Television or airline tickets. The Covid-19 pandemic lockdown has changed shopping inclination for even senior citizens and consumers who were not digital savvy earlier, but have now started using these e-commerce platforms/Apps to buy their necessities. Apps like Amazon, Flipkart, D-Mart and now Large Indian Corporate bodies like Reliance and Tata foraying into this platform will give stiff competition to retail shops/showroom and mall properties. While mall property owners can contemplate changing the usage of the property from retail to office space, hospitality, or even some medical/hospital facilities, the survival of shops and large showrooms spaces is the question to ponder.

To conclude, while retail property segments may have their own hard time in the future, other commercial real estate segments in India like office spaces, IT Parks, data centres, warehousing and logistic parks will experience constant rising demand keeping a long-term horizon for the next 5 to 7 years, barring the temporary phase of Covid-19 for the next 12-15 months.

By Mehul Ved, MRICS (Chartered Surveyor – RICS), CEO – Ace Realtors (Real Estate Transaction Services)

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