Ahmedabad: Work-from-home invites commercial property tax! – ET RealEstate

AHMEDABAD: At a time when a large number of offices has switched to work from home (WFH) mode to tide over the Covid-19 pandemic, it has proved costly for a local ceramic trader. The Ahmedabad Municipal Corporation has imposed commercial property tax on the trader for ‘commercial use’ of his residence after the officers found display of ceramic articles in his home.

The AMC has also directed Suresh Tahiliani, owner of the ceramic business in Naroda, to stop using a portion of his residence as workplace as he had earmarked a small space of the property as his office following the lockdown period.

Though Tahiliani stopped using the space as office, he was forced to move the city civil court against the AMC’s notice which also directed him to restore the property to its original status of “residential” . Last week, the court stayed any action on AMC notice at least till the civic body explained its position before the court.

Tahiliani had purchased a residential property, demolished the structure and rebuilt it in 2016. A year later, he obtained the building use permission for residential purpose. He has been paying property tax to the civic body under the category of residential property for two years.

In July this year, he was asked to pay commercial tax for the property for 2019-20 after civic officials found an office being run from the premises. Tahilani had no issue with paying commercial tax, but AMC issued him a notice asking to stop using the property for commercial purposes and restore the building to its original position.

Tahilani wrote back to AMC in October explaining how he obtained BU permission after reconstruction three years ago. It was only for a short time after the lockdown that the small portion of the premises was used as an office where ceramic articles were also showcased.
Ahmedabad: Work-from-home invites commercial property tax!‘WFH doesn’t mean setting up shop at home’

Ahmedabad Municipal commissioner Mukesh Kumar said the merits of the case would have to be examined. “Usually, WFH does not mean that you can set up a shop at in your house. WFH means having a personal workstation, a few files and a corner room to yourself. AMC does entertain applications for converting part of residential properties for commercial use, but then there is a procedure.”

“We receive applications from citizens for converting part of the residence for commercial use for requirements under Shops and Establishment Act or for obtaining professional tax certificates. But when people don’t reveal that part of their properties are used for commercial purpose we have to go by the book. At present AMC does not have any tax exemption policy WFH policies,” says a senior AMC tax official.

AMC did not respond to Tahilani’s representation, and he went to civil court. The AMC has not responded to the court’s notice and the court thus stayed any AMC action pending reply.



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Net office absorption seen at 31 million sq ft in 2021 – ET RealEstate

MUMBAI: Net absorption of office space in 2021 is expected to be at par with the last 10 years average of 30-31 million sq ft in India despite the challenges created by the ongoing pandemic, said property consultants.

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.



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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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