When coronavirus first hit the Indian mainland back in January end, many real estate gurus were nonchalant about its effect on the real estate market. The only effect that was predicted back then was in luxury residential real estate and that too owing to the disruption in procurement of various luxurious fittings that are usually imported from China. Cut to May, the situation has gone from bad to panic-level worse and the worst affected segment as of now seems to be the commercial office real estate.
As per a report by Liases Foras, the vacant office space in top Indian cities is going to shoot up to 32% from the present 12 percent, if the lock down situation continues for four more months. In Mumbai alone, the real estate firm predicts that the vacant office space is going to increase from 18 percent to 41 percent by September.
Talking about Mumbai’s poshest office spaces, Bandra Kurla Complex is known for its mix of Fortune 500 companies, multinationals and foreign banks as its clientele. The space has the current BKC lease rentals between Rs 250 and Rs 300 a sq ft per month which is soon expected to come under pressure.The occupiers have been paying their rent since the outbreak but some of them, especially smaller firms and startups, are now feeling the heat.
Similarly, corporates based at Nariman Points are now reportedly delaying their rents by a month.
“They want more time. The next two quarters will be tough,” Vishal Sharma, a commercial property owner in Nariman Point told TOI.
Big corporate have been paying their rents on time as of now but they too are expected to take drastic measures if the situation remains similar.
Another aspect of office real estate is the workforce’s adaptation towards work from home. Though implemented out of compulsion during onset of lock down, work-from-home has proved to be an effective strategy for many sectors. Many big corporates including TCS, Axis Bank and Zomato, have made plans to implement the policy across functions.
No wonder, big companies too are rethinking about their requirement of office space. As per a recent report, the commercial footprint of many companies may get reduced by as much as 20-25 percent in the long run due to the emphasis on work from home.
“Industry specific space take up of commercial spaces may shrink by 20 to 25 percent going forward as more companies would focus on work from home. Some, especially small companies, may want to save on expensive rentals,” Money Control quoted Pankaj Kapoor, Managing Director, Liases Foras, as saying.
Other real estate experts feel that owing to the long term nature of the contracts that companies need to adhere to, real estate footprint may not reduce immediately but the impact will surely be visible after 12-18 months.