The Covid-19 pandemic disrupted the the office real estate market as companies had to adopt to a new alternative: getting employees to work from home. As a concept, the view within the real estate industry was that remote working would not work in India. But it did, and did so successfully for a majority of organisations.
However, analysts caution that work from home isn’t a sustainable long-term solution for all corporates. A reason why net office space absorption in the October to December quarter (Q4) of 2020 reported a 52% rise to 8.27 sq.ft., over the preceding quarter, according to a recent report by property consultancy firm JLL. “Stakeholder outlook for the office market has improved substantially,” says Niranjan Hiranandani, National President, Naredco and Assocham, and founder and MD, Hiranandani Group.
The increase in net absorption in the period under review was driven by the IT/ITeS sector as well as increased demand for office spaces from sectors such as e-commerce, healthcare, and FMCG. Moreover, as per the JLL report, office occupiers usually take a longer-term view while making leasing decisions and many occupiers are said to be utilising the current situation to get attractive deals from landlords.
“With the economic recovery heavily dependent on the vaccine, the length of this downturn now is certain. After almost a year of working remotely during a global pandemic, work force is already thinking about their gradual returns to the workplace,” argues Raj Menda, joint chairman, FICCI Real Estate Committee and Corporate Chairman, RMZ Corp. “As global economies have stabilised, we have also seen an increase in private market activity. Two large scale office transactions in South India in Q4 020 are testament to that.”
Overall, net office space absorption in 2020 stood at 25.82 million sq.ft, a far cry from the office space uptake of over 60 million sq.ft. in 2019. While it was an outlier year, the average annual office space absorption in the country ranges between 30 million and 40 million sq.ft. In fact, the net absorption levels in 2016-2018 averaged to about 31.81 million sq.ft., by which measure the office uptake in 2020 wasn’t too bad—with a 81% recovery rate.
As per JLL’s report, work from home presents several physical and cultural challenges, more so for a country like India with a large proportion of employees staying in multi-generational households. “Work from home could be, at best, a supplement to the traditional way of working from office and could impact the office market demand by an estimated up to 20% in the medium to long term.”
The report further stated that the overall dip in office demand will be counter-balanced by increasing demand for office spaces from emerging sectors like healthcare, e-commerce, and data centres. “The pandemic had accelerated the e-commerce growth to such an extent, which would have taken four to six years to achieve. The insurgent growth is going to impact logistics related infrastructure including warehousing, positively,” points out Menda.
Looking ahead, as per JLL estimates, 2021 will see a net office space absorption of about 32 to 35 million sq.ft. This will be at par with the annual net absorption levels seen during 2016-2018. “Equally crucial is the development of the vaccine and it’s widespread availability for the masses, these two factors will largely determine the performance of the real estate sector in the coming months,” says Shishir Baijal, Chairman and Managing Director, Knight Frank India.