Commercial realty facing Covid blues

Developers deferring new project launches; Restoration of demand likely towards year end

Companies are also seriously thinking about a hybrid working model in which employees don't have to come to office on each working day

- While real estate companies are deferring any new project launches, rentals are facing severe downward pressure

- Demand for spaces in malls, and other such commercial establishments is down, leading to price correction

Bengaluru: COMMERCIAL real estate market continues to remain under pressure with no immediate signs of recovery as the second wave of Covid-19 pandemic disrupted the nascent recovery seen in the sector during the January-March period of this year.

While real estate companies are deferring any new project launches, rentals are facing severe downward pressure as many corporate houses are renegotiating rental yields owing to non-utilisation of spaces. Many small and medium enterprises (SMEs) have also vacated space in the last one year with many moving to co-working spaces.

"From the supply stand point, developers have put brakes on new launches. Because the fear is that once new supply adds up, it will add to the current inventory and will put pressure on pricing," said Satish BN, founder and Managing Director of Skydealz, a real estate consultancy firm.

He, however, said that realty firms are delivering those projects on time if there is prior commitment to do so.

According to an India Ratings and Research (Ind-Ra) report, the wide-spread adoption of work-from-home culture along with reduction in fresh leasing activities due to weaker economy can shave around 40 per cent off in annual office demand in next few years.

The rating agency said such transition to work from remote locations may prompt companies to use hot desking policy under which the same desk can be shared by a number of employees who report to work on different days.

Many corporate houses are also seriously thinking about a hybrid working model in which employees don't have to come to office on each working day and can operate from home on some days. Not only office spaces, but also demand for spaces in malls, and other such commercial establishments is down, leading to price correction.

"Bengaluru, which is one of the prime markets in absorption of office spaces in the country, has seen around 15-25 per cent price correction in last one year," said Satish. Such falling occupancy in commercial properties is being reflected in the newly launched real estate investment trust (REIT) focusing on office portfolio. According to India Ratings, in one such REIT, occupancy declined to 86.8 per cent in Q4 FY21 from 92.2 per cent in Q1 FY21.

Similarly, occupancy at another listed REIT declined to 81.8 per cent in Q4 FY21 from 87.1 per cent seen in Q2of FY21.

However, experts said that demand in office space is likely to come back once largescale vaccination is achieved.

"Demand for office space will be back once a majority of people get vaccinated. I think, some sort of normalcy will come back towards the end of this year or in the first quarter of next year," said Satish.