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COVID-19 impact | Commercial real estate space take-up may shrink by 20-25%

Commercial footprint of many companies may get reduced by as much as 20-25 percent due to the emphasis on work from home

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For several companies, the work-from-home concept has proved to be an effective strategy.

Top companies like Tata Consultancy Services (TCS) and Axis Bank have made plans to implement the policy across functions.

So, is this going to be a model adopted by the majority of corporates going forward as they reassess their requirements for commercial real estate? Also, what will be the impact on the commercial realty market?

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Commercial space take-up may get reduced by 20-25 percent

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While some experts are of the opinion that work from home cannot fulfil the requirements for every type of company, it is not a one-size-fits-all workplace alternative and that corporates would actually require more space to adhere to the social distancing norms, others say that commercial footprint of many companies may get reduced by as much as 20-25 percent in the long run due to the emphasis on work from home.

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"Industry specific space take up of commercial spaces may shrink by20 to 25 percent going forward as more companies would focus on work from home. Some, especially small companies, may want to save on expensive rentals," said Pankaj Kapoor, Managing Director, Liases Foras.

WFH to co-exist with work-from-office and work-from-near-office

A few experts feel that WFH will co-exist with conventional work-from-office and work-from-near-home

Going forward, some firms may want at least 5 to 10 percent of their staff to continuously work from home even after the lockdown. In the short term, the real estate footprint may not reduce considering the long term contracts some companies would have to adhere to. The impact of work from home concept on the actual office space absorption ecosystem would be seen after 12-18 months, said Amit Ramani, Founder & CEO - Awfis Space Solutions Private Limited.

A few companies, especially mid-sized and large firms, may even consider the subscription-based option of work from home wherein their long-term real estate needs would be optimised. It is to cater to this demand that Awfis recently launched a new product Awfis@Home.

“The product offers a solution that can assess organisational readiness and provide adequate infrastructure for employees to work from home. Available at Rs 2,500 per month, this tool could help companies save on real estate cost and even per seat expenditure on employees which is around Rs 50,000 per seat per month," he said. Meeting room credits are also being offered at Awfis' 70 centres where employees can hold client meetings by visiting the nearest centre.

"Corporates may have discovered the viability of employees working from home (WFH) during the coronavirus pandemic as an alternative to occupying costly office spaces but it is not a one-size-fits-all workplace alternative. A large chunk of work needs constant monitoring and professional infrastructure which only an office setting can provide," property consultant ANAROCK said in a report.

Going forward, tenants are sure to recalibrate their space requirements, while some may decide to have a larger workforce working from home, others may decide to go in for a smaller space to be maintained as a corporate office. The focus would surely be on the average monthly per-desk rentals of an office space.

According to Arvind Nandan, Managing Director Research & Consulting at Savills India, shrinking of office space is unlikely at this stage. In the COVID-19 situation, the old concept of offices with cabins may be relooked at and the 100-125 per sq ft may become the norm again as companies would require more space to maintain social distancing norms.

Connectivity and distraction biggest challenge of WFH

At a recent interaction, Embassy Office Park CEO Michael Holland said that the general view about work from home concept is that it is competent but not comfortable.

"It is not just the issue of digital infrastructure at home. For some occupiers, productivity of their staff has gone down because of weak broadband connection. Their staff instead of eight hours are taking 12 hours to complete their tasks as a result of which they are paying 3X overtime bill. Yet another message that came through was the young demographic was single and lived in PG or shared accommodation. The conclusion is that there will be more flexible work styles but the office is definitely at the heart of business for companies for cultural and operational reasons.

"We are not worried about the WFH phenomenon, we think it is part of the normal evolution of this market as it becomes more sophisticated. We believe what will happen is that companies would want to be in high quality, less dense offices, in better environments that offer a total business ecosystem," he said.

The corporate real estate sector is more likely to retain or increase office space portfolio over the next six months. Connectivity and distraction from family are the biggest challenges for sustained work-from-home (WFH) during the lockdown, a Knight Frank Survey has said.

Of those corporates surveyed, 62 percent said they would either retain (38 percent) or increase (24 percent) their current office space portfolio over the next 12 months. Only 15 percent respondents said they are likely to reduce their current office space portfolio.

An overwhelming 72 percent said that they are likely to continue with WFH arrangements over the next six months due to the social distancing norms and to maintain the business continuity process, the survey said.

Almost 48 percent respondents said that more than 30 percent of their workforce is expected to continue working from home in the next six months owing to social distancing and challenges of transport while 16 percent respondents identified 'convincing employees to come to work' as a challenge towards restarting their office space operations.

Majority respondents also said that 'maintaining social distancing' and 'physical transportation of employees' are the two main challenges at workplace that all companies will have to find a viable solution to.

Before COVID-19, despite the general slowdown in real estate demand, the office market performed well. The net office space leasing stood at 47 million sq ft in 2019, while gross numbers were in the range of 55-60 million sq ft.

As per an estimate by Anarock, the average monthly rentals in Grade A office spaces in CBD (central business district) areas like South Mumbai and Bandra Kurla Complex are anywhere between Rs 18,000 to 27,000 per desk per month for coworking spaces and between Rs 24,500 to Rs 30,000 per desk per month for conventional commercial Grade A offices. All non-Grade A office spaces in CBD areas are lower by at least 15 percent to 20 percent.

In New Delhi, the average monthly rentals in Grade A office spaces in CBD areas like Connaught Place range between Rs 13,000 to Rs 19,000 per desk per month for co-working spaces and between Rs 20,000 to Rs 25,000 per desk per month for conventional commercial Grade A offices. Non-Grade A office spaces in the CBD areas are at least 15 per cent to 20 per cent cheaper.

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First Published on May 29, 2020 07:22 am
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