Impact of COVID-19 on Real Estate

Most industries across all markets have taken a hit due to the recent health pandemic. Real estate too, is no exception. While the low is temporary, it is set to leave lasting implications on the real estate industry.

Flexible & Scalable Solutions On The Rise
Most companies have been re-evaluating and re-working on their strategy and business plans. This rework also includes a change in the workforce number. Given the situation, many organisations would like to opt for flexible and scalable real estate solutions that can align themselves with their revised growth plans easily.

An Increase In Occupancy Vacancy Rates
The vacancy rates across office spaces in country are seeing and will continue to see a rise. Small and medium-sized companies that occupy smaller offices have been hit the hardest. With significant termination of rental agreements market will witness a high vacancy rate.

Allocation of More Space Per Employees In The Office
One of the most vital changes to the workspace is going to be the change in space per employee based on social distancing norms. Currently on an average, 70-80 sq. ft. of space is allocated per employee. This is likely to increase to 110 – 125 sq. ft. per employee.

Change in Requirements
With a change in allocation of space per person, requirements of organisations are likely to change too. Couple this with the fact that several organisations are looking to adopt the ‘work from home’ policy or a rotational workforce policy (employees coming to office in shifts only once, or twice a week) even post-Covid, we are set to see re-alignment of CRE strategies across most organisations. The two major changes are likely to have a significant impact on workplace requirements. Many corporates are likely to surrender 10-20% of their total area to cut cost and optimise their office space portfolios.

Occupiers will likely to be more inclined towards fully compliant spaces to avoid any business risks, to safeguard their client interest and to ensure insurance claims.

Refurbishment Projects
To follow social distancing, many organisations may look to re-structure their existing layouts to increase distancing between each desk and employee. Several companies would likely be looking at extensive refurbishment projects to maintain a safe distance between their employees.

Temporary Pause In Fresh Office Supply
All construction activities have taken a hit across the country. This is bound to put a pause in the supply of fresh office spaces as new project launches and under construction project completions are likely to see delays.

Lease restructuring or renegotiation’s
Organisations, including corporates, not just in India, but around the world in pandemic-hit countries are navigating through tough times with minimal sales in April & May 2020 and high rents to deal with. In the light of this situation, we are likely to see many organisations working on lease restructuring, rent negotiations and deferments with their landlords.

Retail Spaces Are Likely To See A Slowdown
As the world finds a new normal, avoiding crowded public places is going to top the list of this new normal. Retail outlets are likely to see lesser footfall in the upcoming months and online shopping is going to be preferred choice.

On-Hold And/Or Declined Activity
More than 40% of ongoing lease and sale transactions are being put on hold for 2 quarters and more than 20% of the CRE projects have been shelved. Add to that, more than 25% of the industry transactions have been downsized. Capital markets – Investors activity and investment opportunities in capital markets too, will likely be seeing a sharp decline.

Impact on Co-working
The co-working and managed office space segment has already started experiencing increasing vacancy levels as many start-ups and ancillary offices have already terminated their short term leases . This trend is likely to continue for some more time. It is only post this half year mark that organisations are expected to start considering these low risk low, short term offices.

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