India’s real estate sector adopts largest remote working experiment
Retailers shift to e-commerce and expand to online strategies for business continuity.
- The present lockdown to halt the spread of COVID-19 has brought about the largest remote working experiment seen in India.
- The retail industry has been hit hard and companies that had set up tech support centres are hampered, causing both industries to resort to online channels.
- It is now critical for landlords and developers to ensure risk-mitigation measures to infuse confidence and attract occupiers as soon as the lockdown is over.
The Indian real estate sector has seen a tumultuous run over the last two years. While office leasing activity has been robust, with 2019 breaching its previous high volumes, and private equity investments have been buoyant, the residential sector has experienced a lengthy slowdown.
Some of the measures announced by the government to revive the residential segment had started to become visible with a marginal increase in sales and completion of stalled projects. However, the year 2020 has begun with unforeseen events including downward revisions to India’s economic growth by most analysts, problems in the banking sector and – most significantly – the outbreak of COVID-19. The slowdown in economic growth had yet to cascade to the real estate sector before COVID-19 began, hampering the real estate decision making in India in March.
Biggest remote working experiment
The pandemic has warranted greater stress on wellness and hygiene at the workplace. It has resulted in increased telecommuting, providing an opportunity for the biggest remote working experiment ever seen in India. As a result, we are now seeing occupiers accelerating adoption of technology and elucidating their cloud strategy to lessen the shocks from the abrupt switch to remote working.
The effects of the outbreak have been felt most directly by the travel and tourism industry, not only due to the decline in inbound tourism but also to the ban on domestic travel, resulting in a decline in occupancy levels in hotels. Most conferences have been rescheduled or are happening online, boosting the importance of e-meetings. The retail industry has also been hit hard as footfall and sales decline, particularly in shopping malls and even main street markets. This has provided opportunities for retailers to shift to e-commerce and expand offline-to-online strategies.
Delayed decision making by occupiers is likely to hamper space take-up. In 2019, gross absorption across the top seven cities in India reached 58.6 million sq ft, a new high driven by expansion by occupiers. However, gross absorption in 2020 is likely to be lower as both business expansion plans and occupier strategies undergo alteration after the national lockdown mandated by the government.
The operations of multinational companies that had set-up tech support centres and global in-house centres are hampered, directly impacting their top line. Some occupiers that were not prepared for remote working are finding it difficult to continue routine operations. One expects the key sectors driving demand for leased office space – technology, banking, financial services, insurance (BFSI) occupiers and flexible workspace operators – to revise their expansion plans and wait till the third quarter before taking decisions. Hence, it is also likely that the occupancy levels in flexible workspaces will remain muted in H1 2020 in key cities such as Delhi-NCR, Bengaluru, Mumbai, Hyderabad and Pune. It is now critical for landlords and developers to ensure risk-mitigation measures to infuse confidence and attract occupiers as soon as the lockdown is over.
Real estate investments in India
On the investment front, according to data from Real Capital Analytics, institutional capital from Singapore, Hong Kong and mainland China accounted for 28 per cent of total real estate investment in India in 2019. There may well be delays in capital deployment due to slow decision-making and caution among investors over H1 2020. However, in the long term, as investors from Asia look out for Grade A office assets offering steady returns, we expect them to remain positive towards India.
Newer opportunities for data centres and industrial and manufacturing sectors are also arising due to the implementation of practices towards the next phase of industrial revolution popularly named as Industry 4.0.
A new dimension of doing business, the way we live, work and shop, is being adopted to ensure steady operations. The present lockdown has brought about the largest remote working experiment seen in India, and companies must invest in technology to enable remote working. All participants in property markets including occupiers, investors and developers must give priority to health and wellness and focus on business continuity plans.
Megha Maan is the Senior Associate Director, Research at Colliers India.