The emergence of the Work-from-Home model given the lockdowns and safety of employees has impacted the demand for office spaces as only a fraction of employees are coming to offices. However, the numbers are expected to improve with the access to the vaccine.
“I am pleasantly surprised by the absorption. Honestly, I didn’t think that this calendar year will be 50-60% of 2019 absorption. In June, I would have said it would be between 16 to 19 million sq. ft, but now the net absorption is likely to be somewhere around 25 million sq. ft. It is surprising,” said Anuj Puri, Chairman, Anarock Property Consultants.
After the dip in net office absorption in the June-Septmber quarter, it started improving gradually.
“In comparison to Q2, the absorption went up by 63%, but if we were to compare Q3 of the last year, the absorption went down by nearly 47%. So, last year in the first nine month we saw nearly 32 million sq. ft. of net absorption. This year, in the first 9-months, we have only seen 17 million sq. ft. Hence, we expect this year to end with around 25-27 million sq. ft absorption and in comparison to 46 million sq. ft. last year, this is still a drop of 42-45%. 2019 was a very extraordinary year of 46 million sq. ft. It will be wrong to take that as a benchmark,” said Ramesh Nair, Country Head and CEO, JLL India.
According to Nair, the average of the last 10-year can be considered as a benchmark, which is around 31 million sq. ft. and there is a very good chance that in 2021 would cross that number. In 2019, it was 46, but a year before in 2018 it was around 36 million sq. ft.
While net office absorption has improved considerably, only a fraction of employees have returned to work place so far. The percentage is further low when it comes to information technology parks.
“Our research shows it is actually 8% at large campuses. There are two main reasons for it. There are many companies which have gone ahead and announced remote working plans till March 31, 2021 and employees don’t need to come to office. Secondly, employees themselves are not very confident given the public transport situation in the country. It is a gradual process. Occupiers are highlighting that things are improving but very gradually and WFH don’t work for everyone and people will slowly start coming back to office,” Nair added.
Puri echoes the thought. “We don’t think we are going to see people coming until the vaccine is there. It is 9-11% at various office parks and companies are not pushing their employees. Whether WFH works or not is a question mark, but until the vaccine comes in, the percentage will continue to remain low.
According to Anshul Jain, MD-South East Asia and India, Cushman & Wakefield, people are scared but there is also a clear distinction between personal and work. They are out in markets, going everywhere buying stuff, but when it is about coming to offices, they are not keen because of corporate cultural issues.
Jain believes that there will be a lot of experimentation in the office set up in the coming months with work-from-home and other concepts but nevertheless, the future of commercial real estate is bright in the coming fiscal.
Overall office absorption has been impacted because of the WFH arrangements considering the pandemic. Impact is here to stay for few years, but not permanently.
“If we have to put a number for the next two year of how much real estate office absorption is going to be impacted because of WFH, it would be around 20-25% for the next two years,” said Nair at a webinar organized by Workplace Trends India.
The future of co-working is looking robust, as average co-working space has doubled during 2020 compared to 2019, they said.
“Average co-working space has doubled to 70,000 sq ft in 2020 from 35,000 sq ft in 2019. Enterprises are taking up space in co-working setup and these coworking players are now catering not just to freelancers and startups but to larger enterprises and hence they are taking up bigger spaces. The future of the co-working space is really bright,” mentioned Nair.
However, Jain believes that Co-working operators have to concentrate on enterprise clients to stay afloat.
“There were two-three different types of customers for Co-working or Managed office space. There were individuals, there were startups and then there was enterprise. The first two individuals and startups may continue to work from home and they may not come back until 2021, by 2022 they might come back, therefore focus on enterprises,” said Jain.