Office space developer DLF says that the industry is still working on the contours of a hybrid working model. According to DLF’s rental business CEO Sriram Khattar, initial patterns suggest that 10-15% employees may never return to office. Speaking with FE’s Rishi Ranjan Kala, Khattar said that another 15-20% employees would have to always come to office, but the companies are exploring how the remaining 60-70% would be attending office, albeit for 2-3 or 4 days a week. Excerpts:
What has been the impact of Covid’s second wave on commercial real estate?
The second wave was more severe than the first one and took all of us by surprise. This had an adverse impact on employees returning to their workplaces. In the last two months the government has executed a commendable job on vaccinations. This has started instilling confidence in people. Footfalls in DLF Cybercity (Gurgaon) are at about 20-25% and increasing every week. In the near term, once travel picks up, there would be much more interaction moving towards normalcy. Site visits in our various commercial developments are getting better every month.
What are the prospects for the hybrid working model?
My interactions with senior IT/-ITeS industry leaders indicate that they are still working on internal thought processes on what hybrid working will be. The early stage pattern that is evolving is that there will be about 10-15% people who may never come to office. A second set of around 15–20% will always come to office for critical operations. It is the larger third set of around 60-70% who work on some level of flexibility, whether that is 2-3 days or 4 days a week. Firms are still evaluating whether the third segment should be given a hot desk or a permanent desk and feedback is mixed. Some of the forward-looking companies, which have a strong business case, are looking to give permanent seats, while some are thinking of some hot seats and some permanent seats.
Can you share details on large office deals in Chennai and North India?
The partnership for about a million sq ft (MSF) in DLF Downtown, Chennai, which is a 6.8 MSF development, was indeed encouraging. We were discussing this partnership for more than a year and we closed it during the pandemic. The master planning is coming to an end. We are in the process of starting construction by December 2021 or January 2022. Yes, we have had further inquiries in all our large cities where we have operations — Gurgaon, Hyderabad and Chennai. Three-fourths of this is in advanced stages of fructification.
What are your plans regarding flex space/managed space?
I believe there is scope for developers to tie up with companies that provide high-quality managed services. Proposals are coming to us but we don’t think we will tie up with only one company. The model should be that we are a good credible developer and there are a few high quality managed office service providers. They have their own clients and we have ours. Whenever there is an opportunity to work together, we should leverage on mutual strengths to provide the best work-place solutions to the potential tenants.
What is the status of your REIT?
As said in the last analyst call, we are working towards making DCCDL REIT ready, which is likely to be by the end of this fiscal. After that it is dependent on the shareholders to decide the timing of the REIT. The exercise of identifying the assets is going on between the bankers and us. I don’t think not having a presence in Bengaluru will impact out REIT. In fact, we have a position of eminence in NCR and Chennai where we have been nurturing developments for about two decades.
What is the scenario in your retail segment?
The situation today should not be the basis for making a strategic decision to create a mall. A new mall will become operational three years down the line. Thus we need to look at the potential three years hence. This experiential shopping will continue to do well offline and we are looking at expanding our portfolio. The expansion is likely to be predominantly in the NCR area. In Chennai, we are constructing DLF Downtown and, as part of this, a small portion will be retail.
How are your rental collections?
In offices, rental collections have been near 100%. In retail, because of the pandemic, collections have been relatively slow, which we experienced last year after the first wave also. But from October-November, they started picking up and FY21 year-end, the outstanding was the same as in FY20. I believe that as we go towards December and January-March, the collections will come back to the same level at which they were at the end of FY20 and FY21.