Commercial space to ensure rebound of realty sector post COVID-19
September 25, 2020 3:13 PM
A Colliers International Report highlights that the commercial segment is expected to be on investors’ radar in the post-COVID scenario due to its resilience, good track record and lucrative return potential against the backdrop of a depreciating rupee and falling crude oil prices.
Office spaces will also benefit in case of the relocation of manufacturing firms to India amid the disruption of global supply chains.
The commercial sector most probably would lead the road for real estate recovery and subsequently shape its growth trajectory. Commercial real estate in fact has been a preferred asset class with a comparatively higher average rental yield of 6%-8% against the residential sector. Moreover, it has been largely resilient to the overall economic slowdown in the recent past and has managed to woo investors due to its attractive return potential. In 2019, commercial real estate accounted for maximum private equity investments at $3 billion in the overall Indian retail mix. A Colliers International Report highlights that the commercial segment is expected to be on investors’ radar in the post-COVID scenario due to its resilience, good track record and lucrative return potential against the backdrop of a depreciating rupee and falling crude oil prices.
Office spaces are expected to lead the growth on the back of the robust growth of Business Process Outsourcing (BPO) and IT/ITes sectors. Until now, the impact on office spaces has been rather limited as they comprise only a portion of global firms’ overheads. The COVID-19 pandemic has also prompted firms to go back to their drawing board to steer though this unprecedented time. Those firms that are flexible enough to reinvent themselves and devise out-of-the-box solutions to stay connected with their target audience will emerge winners.
COVID-19 is also expected to shift the occupiers’ preferences towards ready to move-in properties; larger offices will be given precedence over the need to be in city centers. As occupiers reassess offerings from a realistic angle, integrated office spaces with facilities for wellness, collaboration, community-building and retail needs will gain currency. Remote working, extensive use of technology to enhance customer experience and digitization were among the dominant trends witnessed in real estate amid the lockdown. We foresee a continuity of these trends along with overall health, hygiene and wellness becoming a paramount concern for the entire ecosystem in the post-COVID-19 scenario. Facility management will assume an overarching role in assuaging these concerns through comprehensive measures. Equally significant will be the roles of risk management and risk mitigation to devise both immediate-term and long-term strategies to navigate through uncertainties.
India witnessed a milestone in commercial real estate with the inception of REITs in 2019. However, the slowdown induced by the pandemic has impacted REITs in the short-term. But they continue to be a relatively safer investment avenue due to the income-generating potential of its underlying assets. Due to the long-term nature of office space leasing, tenants in REIT-backed properties are better equipped to avert the default in payments. The REITs landscape in India is expected to undergo further evolution with diversification of underlying assets. A healthy balance sheet, an able leadership and well-thought investment strategy will be the key for REITs to navigate through this crisis.
Office spaces will also benefit in case of the relocation of manufacturing firms to India amid the disruption of global supply chains. The triple advantages of affordable and skilled labour, demographic dividend, and lower land costs will play a pivotal role in portraying India as the next manufacturing hub. Much, however, hinges on how we leverage this opportunity and further improve ease of doing business to attract them.
That said, the current crisis has also underscored the significance of communication and collaboration to address gaps which is a way forward for real estate as well. Developers need to brainstorm to think out-the box to devise customized offerings and experiences for customers depending upon their preferences and budget. At a policy level, the granting of an industry status and instituting a single-window clearance system will further strengthen investors’ confidence in the market and lead to a win-win situation for developers and investors alike. Labour-friendly policies with access to basic entitlements such as life insurance, medical insurance cover, accident/disability cover will go a long way in encouraging the retention at construction sites and ensure speedy completion of projects. Relevant stakeholders in the real estate ecosystem need to work collectively to lay down an aggressive blueprint for revitalizing the sector.
(By Ravi Singh, Head Communication, Viridian Group)