PE Inflows in 2020 to be 45-50 percent lower YoY; net office space leasing could drop 45-55 percent to 21-24 million sq ft during 2020 across major cities as companies may defer expansion plans
The real estate sector has been hit hard by the coronavirus contagion and the residential segment is likely to face sales pressure, which in turn may trigger a 5-10 percent price cut across segments.
Net office space leasing could drop 45-55 percent to 21-24 million sq ft during 2020 across major cities as companies are likely to defer their decision on expansion plans after the outbreak of COVID-19, according to a report by Cushman & Wakefield.
Established players in premium and luxury housing segments may hold on to price levels though lenders and sales pressure could trigger a 15-20 percent discount of previous price quotes, the report said.
"Office market remained robust in January-February 2020 before tapering off in March as COVID-19 and lockdown took hold. Deals in advanced stages pushed to the backburner as corporates focused on BCP (business continuity plan) measures and put RE (real estate) decisions on hold," the report said.
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PE Inflows in 2020 to be 45-50 percent lower y-o-y. This may be a short-term blip as PE funds realign their capital allocation stack, says the report COVID-19 and Indian Real Estate: What Does The Future Hold by Cushman & Wakefield.
Rental growth in the office market is likely to cease; minor flexibility in negotiations for deal re-pricing to cause a 5-10 percent rent reduction across corridors, but local demand-supply dynamics will rule. Flex space demand in 2019 (around 7.0 msf), to drop by 50-60 percent year-on-year in 2020, the report said.
Markets like Bengaluru and Hyderabad where pre-leasing levels are high will continue to dominate upcoming supply over the rest of 2020 and 2021 (about 50% share), it said.
Ongoing office space requirements undergoing re-planning. Companies may explore alternate strategies around flexible office, agile workspace formats and dispersed workplaces to achieve cost savings, the report said.
Portfolio re-assessments for workplace de-densification and evolving space strategy to be the norm. Focus on renewals with renegotiated terms and pre-renewals being considered for lease expiries 3-6 months, the report said.
Medium to long-term consolidation strategies to be redrawn with new space needs. Demand from small, medium enterprises and start-ups to decrease. Possible recovery in 2021, highly dependent on revival in USA and European markets, the report said.
Rental growth to cease. There may be a minor flexibility in negotiations for deal re-pricing to cause a 5-10 percent rent reduction across corridors, but local demand-supply dynamics will rule, the report said.
The office segment may see a possible recovery in 2021 but that too would be highly dependent on revival in the US and European markets given that around 75 percent of India’s office segment is dependent on transactions by companies in these countries and leasing transactions will remain at multi-year lows in 2020.
However, with economy recovery taking hold in the US by early next year and considering vaccine trials could be successful by then, Indian office leasing activity is expected to bounce back, the report said.Co-working space demand may drop by half in 2020Business disruption for startups and freelancers to push them towards work-from-home. Small and mid-sized pure coworking players may see center shutdowns. Flex space demand in 2019 (~7.0 msf), to drop by 50-60 percent y-o-y in 2020. Large players to survive while smaller ones may struggle. Consolidation likely. Operators to look at revenue/cost sharing models with landlords, the report said.
Health and hygiene will be key; tech platforms for seamless building and center experience. There may be reduction/discounts in per seat costs (15-20% likely reduction). Demand from office de-densification and multiple office location portfolio strategy to aid flex space operators, it said.
Millennials behaviour to change; may drive residential demand
With focus on flexible working and work from home, those living on rent and not impacted by salary cuts or job losses could look at starter homes or upgrades with a BHK+ study or home and office concept
Residential demand in city peripheries may increase. Dispersed offices, flexible workplace policies around Work-from-home will spur housing demand on city peripheries and create more ‘suburbanisation’ trends helped long by township developments which offer a holistic lifestyle, the report said.
Retail may see rental reduction of 15-20%
Mall completions to be pushed further by 9-18 months and there may be rental reduction of 15-20 percent with superior grade malls engaging with retailers for rent discounts.
No major activity expected in new store openings till end-2020 except select retailers in hypermarket formats or those looking for value deals. Post the vaccine, complete recovery may take about six months.
Warehousing demand to face supply crunch in the short term
Demand in short-term to face a supply crunch with projects impacted by the lockdown and shortage of materials and labour. New construction to restart now and completions in 2021 aligned to demand
Co-living and student housing
Hygiene, safety and social distancing will be driving factors in managing occupancies. With VC funding to be limited for a while, growth may be driven only by well-funded players or opportunistic operators, it said.
There may be opportunities for better commercial terms from stressed commercial landlords and residential developers. Lesser beds in operational premises, high standards in food and hygiene services and reducing touch surfaces will entail more costs with pressure of reducing per bed prices, it said.Co-living as a more affordable alternative would see more interest from those looking to limit living expenses and seeking convenience, it added.