The coronavirus pandemic that almost crippled the fledgling real estate sector, spawned many new trends, including work-from-home (WFH) that has brought in a mixed bag of fortune for the real estate sector.
Following the coronavirus onslaught, the long-drawn pan-India lockdown in June saw offices shutting down and people forced to work from home. Even though some offices reopened in September, social distancing norms and other health and safety protocols ensured restricted staff strength in offices. This trend facilitated ease of working from the safe environs of home during the pandemic, it also contributed negatively to office space absorption.
According to Knight Frank India, the second quarter of CY 2020 was perhaps the worst hit due to COVID-19 pandemic. Office realty saw a substantial decline of 27 percent to 17.3 msf in H1 2020, with NCR and Pune witnessing a sharp fall of 86 percent and 87 percent respectively. Office leasing dropped by 37 percent year-on-year (YoY) to 17.2 msf.
Co-working spaces with open seating arrangements that ensured optimum space utilisation was also the worst hit. The impact can be gauged from the flexible space absorption projections made by Cushman & Wakefield. According to the C&W report, demand for flexible spaces is expected to drop by up to 60 percent YoY in 2020. Going forward too small and mid-sized players may well have to shut shop. This may lead to several coworking players down their shutters.
In the case of residential real estate, the impact of WFH was negative in the short term. Along with other factors, WFH also contributed to slump in home sales. According to Anarock, home sales across top 7 cities decreased by 49 percent in H1 2020, compared to H2 2019. Sales in Q2, 2020 were down 81 percent from Q2 2019 figures. Between January and September, as many as 87,460 units were sold against close to 2.02 lakh units sold a year ago.
WFH or remote working has both advantages and disadvantages for companies and workers. According to a survey by Regus, post-corona, financially-scarred companies resorted to seeking smaller and flexible office spaces to save on costs. Besides eliminating substantial real estate costs such as rent , electricity and facility management, WFH has also been aiding companies to cut down transportation costs of employees. It has also led to better access to talent pools in smaller towns. Employees, too, are saved on commuting costs.
Having said that, WFH has had its own set of challenges. For corporates, risks associated with data security have been of utmost concern. There is also the impact on tax incentives associated with work from offices in SEZs. Companies have had to set up IT infra in homes of employees who face the challenge of employee engagement.
Work-from-home has had its own challenges for employees too. Many have struggled with lack of dedicated and independent workspaces due to space crunch at home. Further, distractions at home may have led to reduced productivity, not to mention the lack of face-to-face interaction. Workers have also spent longer hours in office leading to work life imbalance.
That’s not to say that WFH has not had its own set of advantages. As a matter of fact, residential real estate is a clear gainer. With WFH, employees have saved on transportation costs and other sundry expenses which has enhanced their disposable incomes. This has led to increased home buying. Millennials too have realised the benefits of home buying as opposed to renting.
They are prepared to move city outskirts for the sake of bigger yet affordable lifestyle homes. There's a saving of about 35-60 percent in buying homes in peripheral locations.
Even the rental differential is huge. This cost arbitrage has led to increased housing demand in the outskirts of cities and in tier 2, 3 cities. According to developers, there is an increased demand for 2.5 BHK and 3.5 BHK homes so that extra space can be converted into makeshift workspaces. There is also increased demand for functional flexible spaces that can accommodate work areas since WFH is a reality and is here to stay.
Post Corona, consumer demand has undergone a significant shift with new preferences, making it imperative for developers to go in for design transformation and efficient layouts. There's growing demand for flexible spaces, supplemented with smart modular furniture, ample open spaces and good ventilation to meet wellness requirements of WFH.
Some developers have also made provisions for business centres within apartment complexes to meet the demand emanating from WFH. Home offices are also boosting demand for furniture like compact study tables, book shelves, ergonomic chairs, storage cabinets. Major online furniture company, Pepperfry has reported up to 400 percent increase in demand for home office furniture
With self -owned homes such as villas, row houses, independent floors, providing for better social distancing, the demand for plotted developments is on the rise. DLF has sold 88 independent floors worth Rs 300 crore in Gurgaon in the last few months. To cash in on this trend, developers are offering even smaller plots of 1500-2000 sq ft.
Interestingly, luxury housing which was badly hit in the last two-three years, is witnessing traction with homebuyers preferring larger homes. The emerging concept of Workcation has also boosted demand for holiday homes and home stays.
WFH here to stay
WFH is going to stay as the preferred mode of work in 2021.
As per a KPMG report, 68 percent organizations have incorporated WFH policies. Companies like Tata Steel, Ceat, Zensar have a permanent WFH policy. Technology firms such as Dell are offering solutions to team members to stay connected and productive, making organizations more resilient.
The labour ministry has also proposed introducing rules of conduct for workers employed in service sector establishments. The rules provide for new provisions for work flexibility and explicit WFH options for service sector companies.
Going forward, a flexible hybrid working model is here to stay, especially as the coronavirus vaccine is now round the corner. According to HFS Research & Infosys study, over 50 percent organizations will take to hybrid workforce model.
According to IT leader Infosys, the future of workspace will be hybrid, with flexibility to work from home and office. Companies are increasingly making use of technology to promote the hybrid model. They are identifying key technologies to support and elevate health and wellness of their employees.
At the same time they are also investing in creating a virtual, secure and cloud based IT environment that facilitates remote working. Tech companies like Dell are offering remote work solutions, helping company workers stay connected and productive wherever they are, in turn making organizations more resilient. Cloud strategy is also being worked out to lessen the shocks of abrupt switch over from office to WFH.
So, what will be the impact of emerging hybrid work models on real estate in the months ahead?
Realty experts opine that despite the pandemic, residential real estate sector has performed well with a good pick up in H2, 2020, especially during the festive quarter. They believe that housing demand in the medium to long-term will increase in view of low interest regime, stable property prices and interest subsidies under PMAY which the government may well extend beyond March 2021.
The fears of continuous slide of commercial office real estate are misplaced. Going forward, WFH will not replace work from office. As the COVID-19 crisis blows over, work from office will increase, positively impacting workspace demand.
A survey by Knight Frank has said that cost savings on account of lower commercial real estate footprint due to WFH is largely lost on account of additional costs towards ensuring an effective WFH arrangement. WFH may result in reduced demand for office space in central business districts (CBD). But then, it will be compensated by increase in office space demand in suburbs and tier 2-3 cities as BPOs and IT- enabled services prepare themselves to set up offices in smaller cities.
Further, realty experts do not expect traditional CBDs to lose importance in cities which have diverse urban centres and critical mass for businesses.
All in all, WFH will prove to be a mixed bag for both residential and commercial office real estate.