Commercial real estate will continue to face significant pressure in near term: ICRA – ET RealEstate

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NEW DELHI: The commercial real estate sector will continue to face significant pressure in the near term owing to the continuing impact of the Covid-19 pandemic on both the office and retail leasing segments, according to ICRA Ratings.

With the second wave peaking in Q1 of FY22, the sector is expected to confront similar challenges as in FY21. While the retail leasing segment prospects are intricately linked to the recovery in retail sales and discretionary consumption spending by the urban population, demand recovery in office leasing segment is influenced by multiple factors as corporate occupiers evaluate the challenges and opportunities created by the pandemic on their real estate resource planning.

Shubham Jain, group head & senior vice president, Corporate Ratings, ICRA, said, “Though cash flows remained materially unimpacted in FY21, we are seeing increasing vacancy levels in the rated portfolio as the pandemic has resulted in deferment of new leasing transactions by tenants while the available inventory builds up in line with scheduled completions.”

The delay in conclusion of new leasing is on account of multiple factors including restrictions on international travel and deferment of decision making until there is clarity on employees returning to offices at earlier numbers.

“To some extent, corporates could also be evaluating the potential for them to reduce their real estate footprint through implementation of hybrid work models including work-from-home, flexi-seating, etc. While the factors that have supported the high level of absorption of office space in the country in the past – viz, abundant and cost competitive talent pool – remain intact, the evolving work practices in response to the pandemic may create, at best, a temporary deferment of leasing decisions or, in the worst case, a permanent reduction in the demand for real estate space,” he said.

The cash flow pressures on the retail leasing segment are more evident in the near term as state level lockdowns and restrictions on mall operations impact the tenants’ revenues and will translate into rent concessions being granted by mall operators.

As retail operations eventually recover from the impact of the pandemic, the rental collections are also expected to revert to the earlier levels. Nonetheless, the timelines for such recovery will depend on the pace of vaccinations in the target consumer segment for retail malls, as well as the revival in consumer sentiments following the adverse impact that the second wave had on disposable incomes.

The rising share of retail sales cornered by e-commerce marketplaces will also have an impact on the trading values of traditional retailers in malls, thus impacting the business profile of the mall operators as well.

“The first wave had resulted in reduction in net operating income of retail malls by up to 50% in FY21. However, the recovery in operating metrics witnessed in the second half of last fiscal would have been heartening for the industry. The prospects for such a steep recovery in FY22 could be dampened by the income shock created by the second wave due to the associated healthcare costs that many families incurred. Over the medium term, the industry is likely to see a shift towards more experience based outlets rather than pure retail stores as malls combat the rising share of e-commerce in overall retail,” Jain added.

The credit outlook for the retail leasing segment remains negative due to the high level of cash flow disruption in Q1 and the rest of the year, particularly in the absence of regulatory measures such as moratorium on debt servicing, which had supported liquidity in FY21.



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UK’s Workspace posts 235.7 million pounds loss in FY21 – ET RealEstate

BENGALURU: Workspace Group on Thursday slipped to its first annual loss in 12 years as COVID-19 battered occupancies and rents, with the office-space provider saying it would take a couple of years to recover to pre-pandemic levels.

Shares of the FTSE 250 firm fell as much as 3.6% after it said it lost around a tenth of its customers, comprising mostly small and medium-sized enterprises and entrepreneur businesses, in the wake of the coronavirus pandemic.

Employees and consumers were marooned at homes by lockdowns, while companies were forced to cut costs with few investing.

Workspace Chief Financial Officer David Benson told Reuters the company expects to see “significant” recovery this year after reporting a pre-tax loss of 235.7 million pounds for the 12 months ended March 31.

“Certainly over the next couple of years, we will be recovering back to where we were pre-COVID,” said Benson.

The London-focused company, which serves a varied client base from architects to florists and craft beer brewers to app developers, said a survey on future space requirements over the year showed that only 12% of its clients thought they would reduce space.

“Over 60% of them (clients) said they thought they would be taking about the same amount of space. 25% thought it would be taking more space,” said Chief Executive Officer Graham Clemett on an earnings call.

Annual net rental income plunged 33% to 81.5 million pounds, while the underlying value of its properties slipped 10%.



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Google to move to hybrid workplace model: Sundar Pichai – ET RealEstate

NEW DELHI: Google will move to a hybrid work week, where most Googlers spend approximately three days in the office and two days “wherever they work best”, according to a note by Google and Alphabet CEO Sundar Pichai.

About 20 per cent of Google’s workforce will continue to work remotely after its offices reopen later this year, while about 60 per cent Googlers will come together in the office for a few days a week, Pichai said.

“Since in-office time will be focused on collaboration, your product areas and functions will help decide which days teams will come together in the office. There will also be roles that may need to be on site more than three days a week due to the nature of the work,” he added.

The India-born executive also noted that the company will offer opportunities for employees to apply for completely remote work (away from team or office) based on their role and team needs.

As per the financial details released in Q1 2021, Google has 139,995 full time employees worldwide. While Google doesn’t disclose country-specific headcount, the company is estimated to have over 4,000 people in India.

Google has been investing in India as a strategic hub for its global product development. It has been expanding its employee base across product areas like Search, Cloud, Payments, AI research and has presence in four cities like Bengaluru, Hyderabad, Mumbai and Gurugram.

“Before the pandemic, we had thousands of people working in locations separate from their core teams. I fully expect those numbers to increase in the coming months as we develop more remote roles, including fully all-remote sub teams…

“Taken together these changes will result in a workforce where around 60 per cent of Googlers are coming together in the office a few days a week, another 20 per cent are working in new office locations, and 20 per cent are working from home,” he said.

Google staff will also be able to temporarily work from a location other than their main office for up to 4 weeks per year (with manager approval) going forward. The company will also continue to offer extra “reset” days to help employees recharge during the pandemic in 2021.

“I am profoundly optimistic that once we do, we will be able to come back together in our offices to see all the people we have missed. And we’ll be able to work together in entirely new ways that improve both our work and our lives. The future of work is flexibility,” he said.



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West Bengal offers help to set up covid isolation units on housing societies – ET RealEstate

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KOLKATA: The state health department on Monday issued an advisory to all major housing societies and high-rises in the city, asking the resident welfare associations to set up community-based isolation centres, assuring them of providing steady oxygen supply and daily visits by doctors there.

Less than two weeks ago, KMC had made a similar request to housing complexes.

Last year, many housing complexes had converted their community halls and clubs into safe homes but in the second wave, RWAs had been apprehensive that a patient’s condition might suddenly spiral out of control given the severity of the virus this time. They are also uncomfortable about lack of transparency over the legal liability in case of deaths there.

But Monday’s state advisory asked the RWAs to tie up with government or private medical facilities to set up the units at their complexes. “The current advisory has a lot of clarity and we would convert two of our community halls in the complex into isolation centres. We can accommodate around 20 patients in the facilities. We will approach government officials and try and get the safe homes ready at the earliest,” said Deepak Agarwal of Diamond City West in Behala, which now has 60 Covid patients.

Some complexes, like South City, have started a dialogue with a private hospital and hope to set up the isolation centre in a week. “A private hospital officials visited us. We plan to convert 10 guest rooms in our club into isolation centres that will be managed by the hospital. It should be ready by next week,” said MV Viju, joint secretary of the resident welfare association.

The Urbana management are in talks with a private hospital to convert their spacious community hall into an isolation centre but opposition from some residents halted the process. “Residents want the club to be turned into a safe home but the club doesn’t have an attached toilet, a must for an isolation centre. We are in talks with the residents’ body,” said Debjani Mukherjee, director, Urbana facility management.



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