Can WFH concerns over comfort revive commercial real estate? – ET RealEstate

Real estate developers and select equity analysts believe that the initial euphoria about improved productivity from work from home (WFH) has ebbed and has now triggered concerns over employee burnout, organizational culture and team bonding.

A survey conducted by Knight Frank also showed that 90 per cent of employees in the country miss their office environment while working from home. This makes a case to look for commercial real estate players which may benefit from the recovery of office leasing market in India.

Edelweiss Securities believes that WFH will supplement offices but will not be a substitute in the long run. The brokerage is bullish on realty players with robust office portfolios including DLF and Brigade Enterprises.

Shares of DLF and Brigade Enterprises have rallied 12 per cent and 20 per cent, respectively, since April 1, while BSE Real Estate index has gained 25 per cent during the same period.

According to industry watchers, Covid-19 pandemic has impacted the overall business sentiment but demand for office space will revive as India slowly comes out of lockdown mode.

“There will be a demand bounce back. Currently, things are moving slowly but maybe next year, we will see the momentum picking up,” Vinod Rohira, CEO, Mindspace Business Parks REIT, said during a virtual real estate summit organised by CII.

Market mavens have observed that employees appreciate the enhanced flexibility and savings in commute time due to WFH. However, they are facing a host of other issues which includes lack of human interaction. The blurring of personal and professional lives has also led to a feeling of burnout as work-life balance has gone awry. Even Infosys co-founder N R Narayana Murthy on Monday said he is not a ‘great fan’ of WFH.

A report by the National Bureau of Economic Research in the US also found that WFH days are 48 minutes longer with more meetings to attend and emails to answer.

Some of the concerns which are highlighted in a survey conducted by Knight Frank with employees of tech companies in India include the problem for working parents who have to balance their work commitments with childcare and homeschooling.

On the other hand, singles are facing issues of loneliness which is leading to mental health risks. A sedentary lifestyle is also taking a toll on physical health and well-being of employees.

Lack of space at home due to sharing of the place with family or roommates, infrastructure issues like low bandwidth, power outages and worries over data privacy are among other major concerns of employees and corporates.

Anuj Puri, Chairman, ANAROCK Property Consultants, said, “We are gradually seeing demand for commercial spaces pick up in key cities. The shortcomings of the WFH culture have also been exposed, and a lot of employees are now coming back to their offices. Mumbai and Delhi-NCR are seeing more employee footfalls than Bengaluru, Hyderabad and Pune.”

He further added that many companies will continue WFH model only for a certain percentage of their workforce, and will have to de-densify their office spaces for the employees who cannot WFH. This is because companies must now adhere to the new social distancing norms. From 80 sq ft space per employee, it is being increased to 120-130 sq ft per employee.

Some reports also suggested that leasing demand in the global market has already picked up including from tech giants like FAANG, which were at the forefront of WFH. In the latest commercial property update in India, Google is set to pick up over 2 million square feet of commercial space in Hyderabad.

Edelweiss Securities highlighted that leasing activity in China has picked up in April-June after a sharp decline during January-March due to the pandemic. This indicates that concerns over WFH leading to a collapse in office demand could be unfounded.

On the other hand, residential-focussed real estate companies have outperformed commercial players since the beginning of the ongoing financial year. Shares of Sobha, Godrej Properties, Oberoi Realty, Prestige Estate and Sunteck Realty have gained between 27 and 60 per cent during the past six months.

Commenting on the sector, Nilesh Shah, MD and CEO, Envision Capital, told ET NOW that commercial real estate sector is probably the last place to be in now. “Work from home is now becoming an accepted kind of practice. Commercial real estate is going to face significant headwinds going forward,” he added.



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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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