Future of Indian Real Estate Market Post-COVID-19 Crisis

Future of Indian Real Estate Market

Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE
Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE
India’s real estate market has grown tremendously in the past decade. Robust occupier interest, the rise of organised real estate developers, and the entry of institutional capital have acted as catalysts for the growth. Owning to the current situation and fluidity of COVID-19, the way we will live, work and play in the future is likely to undergo unprecedented transformation. However, this could be viewed as an opportunity to influence the future—and undergo focused innovation.

Recent years have seen the development of a wide range of technological solutions enabling companies to enhance resilience, maintain stability and ensure business and real estate continuity. The adoption of the digital tools has been gradual in some companies as they lacked the urgency or compelling reasons to alter their approach. However, COVID-19 has re-aligned companies to adopt digital solutions at an unprecedented pace in recent months, with the outbreak appearing to be a catalyst for change.

Commercial real estate to remain robust and evolve
Commercial Real Estate has witnessed strong interest from sectors such as technology, banking, financial services, research, and consulting coupled with operators providing flexible space resulted in a sustained annual growth in office absorption. In 2019, gross office space absorption crossed the 60 million sq.ft mark for the first time ever and touched a historic high of 63.5 million sq.ft, registering a growth of almost 30 percent compared to 2018. Office stock across seven leading cities crossed 640 million sq.ft and it is expected to cross 660 million sq.ft. by the end of this year.

While the commercial real estate market in India is evolving and the dynamics of the industry are changing rapidly, there is a need for corporate occupiers to plan for the future, specifically post-Covid-19. Reopening of commercial spaces will require a clear focus on employee and visitors’ safety, sanitisation, technology, and restructuring among other changes. This may add to operational expenditure, but it will ensure that occupiers are prepared for disruptions.

Offices are expected to focus on the distribution of core and flexible spaces in their premises and some might even want satellite offices or use a temporary hub, aiming to lower their capex and improve agility. Occupiers will take time to decide on long-term changes to workspace design such as the use of collaborative spaces or using hot seats. Developers might look at securing their entire assets, including completed properties and those under construction, by following strict sanitisation measures. Working from home was a reaction to the nationwide lockdown to contain the coronavirus outbreak and it is unlikely to become a permanent concept in the future. Overall, we expect demand for commercial real estate to remain robust and the sector to emerge resilient and inevitably reinvent itself.

Technological advancements likely to abound
Technological innovation has brought in tremendous opportunity to transform realty spaces. In the retail sector, e-commerce has been critical to ensuring business survival, while in the office sector, cloud-based working tools and video-conference systems have facilitated remote and home-working. Various commercial real estate sectors have or are looking at utilising virtual reality technology to conduct site visits and interior viewings, while artificial intelligence-enabled people-flow controls have been deployed by facilities management teams to monitor the body temperature of building visitors and mitigate the spread of the virus.

Given the growing requirement for limited human touchpoints, companies would have to take a relook at their digitisation strategy. Adoption of touchless technology is expected to be a focus area. For instance, corporates in China have deployed technologies such as holographic projection elevator controls; temperature scans; mask scans; infrared thermal scanners at entry and exit points; UV sterilization devices in elevators and escalator handrails; and facial recognition access control to limit human interface. Moreover, in the long run, innovative technologies would also pave the way to streamline sanitisation costs being borne by developers and occupiers alike.

Industry will continue to attract investors
As diligence for the disease takes center stage, developers and investors will also increasingly focus on making their portfolios resilient against not just environmental shocks but also pandemics. It is expected that “pandemic clauses” would be a part of all building resilience strategies in the coming future. Most investors have kept commitments they made before the disease’s outbreak, as they step up due diligence of projects and developers. Investors will continue to collaborate closely with developers to ensure an effective implementation of sanitisation, security, wellness, sustainability and other preventive norms. Global investors would in fact implement lessons learnt from other markets to ensure a standardisation of measures across assets worldwide.

The appetite for sustainable commercial real estate is expected to strengthen, especially for those looking at more stable rental revenues. Traction from private equity capital, especially in core assets, will strengthen further due to volatility in other segments. We also expect real estate investment trusts (REIT) to continue to gain traction, even though there will be greater scrutiny on quality of assets, sustainability elements and portfolio resilience.

Government measures to support real estate sector
The ₹20 lakh crore (USD 266 billion) economic package announced by the Prime Minister will not only provide relief but will also ensure a faster turnaround. The five pillars for a ‘self-reliant’ India – stronger economy, better infrastructure, technology driven system, vibrant demography and demand – will position India on a stronger footing in the long run.

Future of Indian Real Estate Market
The Finance Ministry has provided certain incentives to the construction and housing sector to reduce the stress it is currently under. It has extended all central agencies’ contracts by up to 6 months (without costs to the contractor), with the agencies asked to partially release bank guarantees to the extent contracts have been partially completed, so as to ease cash flows for contractors. Further, COVID-19 would be treated as an ‘Act of God’ and ‘Force Majeure’ can be invoked to secure a six-month extension of registration and completion timelines for all RERA-registered projects whose registration was expiring on or after 25 March 2020. This will provide relief to the developer community which was facing issues due to labour migration and lack/delayed supplies. Further to this, the government strengthened the affordable housing segment by extending the Credit Linked Subsidy Scheme (CLSS) for the middle-income group up to March 2021 and by opening a new investment class in the form of an affordable rental accommodation scheme for migrant workers and urban poor. The government will provide incentives to manufacturing and other industries to build affordable housing units.

The government has launched a ₹30,000-crore special liquidity scheme for NBFCs, MFIs and HFCs – which will involve investment in both primary and secondary market transactions in investment-grade debt papers of these companies. This is likely to alleviate the short-term liquidity woes of these companies.

Developers will conduct a holistic review of business requirements and portfolio implications, thereby optimize their business model and options considering anticipated changes to infrastructure in a post-COVID-19 world. We anticipate most developers will settle on a balanced approach and focus on building greater resiliency by introducing a combination of physical and virtual solutions, backed by advanced technologies. Wellness and sustainability are likely to become more centrestage at a pace quicker than anticipated. Once the situation is contained and the lockdown is lifted, companies will re-invent themselves and adapt technology and FM operations at a much faster pace to become resilient.

NBM&CW July 2020

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