“Commercial realty slowdown will not last long”

Anshul Jain, Managing Director – India and South East Asia, Cushman and Wakefield assures that there is no structural issue with commercial real estate, despite the setback from the COVID-19 pandemic. It is actually a postponement of demand, rather than cancellation. He also points out to a major positive vis-à-vis the 2009 crisis – that the sector is sitting on far less vacancies at present.

Anshul Jain

TPCI: How will weaker prospects for hotels and restaurants, malls, cineplexes, tourism, etc due to the COVID-19 pandemic impact India’s realty sector in 2020?

Anshul Jain: Travel and tourism, I think will remain subdued until the fear of the virus stays. We have seen a lot of conflicting views in the market, vis-à-vis medicines coming in, etc. It seems that till the time the medicines or vaccinations are developed, market will remain subdued.

Once the lockdown gets over with, retail could see a rather different scenario. Two things are going to happen in my view. Firstly, retailers are going to push an online-offline model more aggressively. While you have retail stores, there will be a lot more proclivity towards online. But I also think that you will probably see people coming back to retail, though it may take 3-4 weeks post the lifting of the lockdown.

In China, as soon as the lockdown lifted, people thronged to retail stores, which was called revenge shopping. We were also talking to our South Korean counterparts. They say that in a span of around 4 weeks, retail trading was back at about 85-90% of what it was last year. This shows that the retail bounce-back has been faster. It may not necessarily happen in India in the same way, but that is the limited evidence I can offer. Non-F&B retail will bounce back faster in my view. It may not be at the same levels as last year, but it will probably be somewhere near.

F&B is kind of harder. In China, people started going out to eat when the lockdown was lifted, but not in the same numbers. India may see a slower recovery in this segment compared to China, where the infections went down to zero, and people had the confidence to move out. If we see the curve flattening for COVID-19 strongly or the numbers dying down, you may see people going back to F&B in a big way.

It is a tough environment for malls. A lot of larger mall owners are working towards solving it. They are partnering with retailer clients of theirs to see how they can resolve the 2-5 month problem. These mall owners are also working with banks on debt and interest payments, etc. The government also gave some leeway to the banks, then it’s upto individual negotiation. It is also not in the interest of the banks to let the retail mall owner go bust.

TPCI: How has COVID-19 impacted the commercial realty segment and what are the challenges to its recovery?

Anshul Jain: 2019 was probably one of the best years for commercial realty in India, while the present year is probably going to be one of the worst since 2009. When the worst comes after the best, the comparison gets tougher. The demand is obviously off, and this year, the demand is expected to fall significantly compared to last year. It is not really demand being cancelled; rather it is merely a postponement of demand. Right now, there is uncertainty on factors like how long the virus will continue, how it will impact the business, whether the recovery will be U-shaped/V-shaped, etc.

Once the lockdown is finished and businesses come back and reassess, we will get a more accurate projection of demand for this year and next year. But this year will be tough. We also need to watch the recovery in the US, because the Indian realty market has a strong dependence on how the US economy performs. If the US economy starts lifting up sometime say in the third quarter, we can have a lag of 3-6 months in terms of demand returning back in commercial realty.

I see a lot of rhetoric around work from home, but if you see in the last two weeks, a lot of articles are beginning to emerge on a range of issues on this trend. Millennials will face problems, because most of them are living in shared accommodations and joint families. Once the market opens up, there are a lot of distractions. It is hard to measure productivity in 80-90% of the industry. The remaining 10-15% is very tech-based.

In Asia generally, the house setting is not ideal. While the bandwidth is good in India, there are challenges like electricity, etc. Work from home right now is a big rhetoric. I do think that companies will provide more flexibility going forward. Also as a result of social distancing, you may end up requiring more real estate, not less.

There are some predicting the demise of offices. Companies like Twitter can ask their employees to work from home forever. That is OK for Twitter, they do not have those many employees. The kind of work that they do may be different. But it is not possible in 80-90% of the industries.

I think the nature of demand will change. Less people may be required to come to office. More space would be provided per person for those coming to office.

So I do not think WFH be a norm. It’s a hard thing to be at home 24/7. There are a lot of mental issues that people are not talking about. And if I am asking a person to work from home, I should also be paying for their home office furniture, broadband, etc. So all that may ultimately be costly.

The good part about this particular time is that this is unlike 2008-09, when the supply was massive and the vacancy was high. In 2019-20, the vacancy is pretty low. I suspect that some firms will probably withdraw or move out, but the vacancy problem will not be massive. I don’t think there will be a significant short term cash issue for commercial office goers. Overall, I do not see a reason why commercial office developers should be worried. It will slow down in 2020 and remain subdued in early 2021. But I am sure it will come back soon.

Some clients would have cash problems, so people will have to see their tenant profiles and do a risk assessment. If the tenant quality is good, I don’t think there will be an issue. There is no structural problem with the sector, as the vacancy levels are very low.

TPCI: Top cities like Delhi, Mumbai and Ahmedabad are also the worst hit by the pandemic. How do you think that will affect the demand scenario?

Anshul Jain: I think portfolio strategies will change. People may decide that rather than having a larger office in one location, they may go for some split. It could be within the city through a hub and spoke model. Some of those fundamental changes may happen. But ultimately, most of the work will need to remain in urban centres. The fact also remains that urban centres are densely packed and if there is an issues, there is nothing much you can do, as these cities are commercial centres. As long as there is one crisis like this (rather than a crisis every year), it should be manageable.

TPCI: How will the individual segments of commercial real estate revive, in your opinion? Do you also see new opportunities coming up?

Anshul Jain: Sectors like BPO within the overall technology sector may find it easier to implement WFH as they would be able to measure productivity. In areas where there are innovation heavy companies like labs set up by the likes of Accenture, IBM, etc in India. Innovation cannot happen with people sitting in their homes.

A Stanford article talked about the potential drop in patent activity next year because of lack of innovation this year, where people are not able to collaborate effectively. Virtual teams have some benefits, but I don’t think you can sit down and innovate virtually. I also think any deeptech/AI-related companies where there is team-led work will continue to work from offices.

In addition, there are a lot of issues around data security, for instance, if you are in a BPO for a bank. There could be three employees from competing banks who are friends working together from a home environment. It is difficult to address security concerns in such cases.

TPCI: What will be the major changes in office design and architecture as a result of the pandemic?

Anshul Jain: In fact, we have developed a model called 6-feet offices. The concept incorporates six elements:

1. 6 Feet Quick Scan: A concise but thorough analysis of the current working environment in the field of virus safety and any other opportunities for improvement.

2. 6 Feet Rules: A set of simple and clear workable agreements and rules of conduct that put the safety of everyone first.

3. 6 Feet Routing: A visually displayed and unique routing for each office, making traffic flows completely safe.

4. 6 Feet Workstation: An adapted and fully equipped workplace at which the user can work safely.

5. 6 Feet Facility: A trained employee who advises on and operationally ensures an optimally functioning and safe facility environment.

6. 6 Feet Certificate: A certificate stating that measures have been taken to implement a virus-safe working environment.

Certainly the design elements will completely change. There was a time when the design was going more towards co-working and more squeezed spaces. I think some of the new thoughts will start coming in towards safe distancing, social distancing, etc. So office designs could have more space and flexibility per person. There could be more shifts, as lifts are not geared for social distancing, particularly peak hours. Reducing packed lift capacity to one-third will lead to huge waiting times. A lot of hub and spoke may come in, which means that the portfolio of offices could be more dispersed.

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