Pared supplies an offset to loss in commercial property demand: CRISIL Research – ET RealEstate

MUMBAI: Commercial real estate projects in their initial stages of planning or construction may get deferred owing to slow down in construction funding and shortage of workers, further impacting the pace of upcoming supply, said CRISIL Research.

This, however, is expected to emerge as a mitigating factor for decline demand and absorption of commercial properties in the backdrop of Covid19 pandemic and acceptance to work-from-home (WFH) model.

“Although WFH has become the need of the hour, it has been receiving mixed responses in some sectors with several participants highlighting challenges pertaining to productivity, security, confidentiality, and availability of devices and internet,” said Rahul Prithiani, Director, CRISIL Research.

However, he also added, the economic impact of the pandemic may result in corporates rationalizing operational expenses across departments, including lease rents. If WFH trends continue to gather momentum, they could weigh heavily on vacancy levels.

In the short term, or at least until a vaccine is available, increased social distancing norms–more square foot per employee–will lead to 20-50% of employees across sectors getting displaced.

While companies may not take up additional office space in the current scenario, they will most likely utilize their existing office space in light of employee health and safety measures. This will ensure existing vacancy levels in grade A office spaces across cities remain range-bound.

CRISIL highlighted another important factor of the lock-in clause of the rent agreement. If companies are within their lock-in phase, there is less likelihood of downsizing of office space requirements. These factors, along with limited fresh supply, will help allay the impact of WFH to an extent.

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What work-from-home means for commercial real estate – ET RealEstate

Commercial real estate is considered a more lucrative and reliable investment than residential property. But the work-from-home culture sweeping across the corporate sector could change that.

“With so many people working from home, large companies are discovering that they don’t need so much office space,” says Anil Primlani, CEO of real estate consultancy Prime Associates.

Some of India’s top professional services firms and IT companies are considering surrendering a part of their rented office space as they look to implement work from home for employees even after the lockdown ends.

It is estimated that 15-20% of executives will continue to work from home. Apart from keeping employees safe, the move will also substantially reduce rental costs. Almost five lakh square feet of office space has reportedly been vacated in the past two months. Another five lakh square feet may be vacated by June end.

Some companies are cutting down more. Mid-sized NBFC Clix Capital which has nearly 600 employees — is planning to vacate half of its office space. “At least 50% of our staff will permanently work from home. It will help us give up about 40,000 sq ft of space,” says Pramod Bhasin, Founder, Clix Capital.

Though demand for office space will come down, it is not expected to crash. The need to de-densify office spaces to maintain social distancing would compensate for any possible dip in demand, according to Ramesh Nair, CEO and Country Head, JLL India. Companies are expected to modify their offices to suit new norms and guidelines.

Many employers will need to scale up the usable area for each employee. “We expect a surge in demand for redesigning office spaces to maintain and incorporate statutory guidelines or international standards and practices. Companies will make changes in their offices depending on their work-from-home policies,” says Tushar Mittal, Founder and Managing Director of SKV.

As more executives are required to work from home, there could also be an uptick in demand for bigger, more flexible houses. Real estate consultant Anarock says people will need functional and flexible homes with an ability to convert rooms into workspaces. “The product offerings may be redesigned by builders,” says a report by Anarock.

At the same time, the job losses and salary cuts are making people shift to smaller accommodations that fit into their pruned household budgets. “After the salary cuts, many people living in 3-BHK apartments now want to switch to 2-BHK flats or move to more affordable locations,” says Primlani.

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