COVID-19 has proved many things plausible which were considered otherwise prior to the pandemic. And one of the major things among them is the success of the concept of work-from-home. Coronavirus pandemic has proven that work from home is very much practical as well as productive, a fact which is now proving to be a threat to office real estate.
What started as a compulsion almost overnight, work-from-home is thriving and has become the part and parcel of every corporate, so much so, that it is now proving a threat to the booming commercial office real estate. As per a recent Knight Frank report, there has been a 37% year-on-year drop, the steepest in a decade, in office transactions in the first half of 2020 in the top eight cities. Bengaluru, the booming office real estate market, is expected to contract the first time ever in more than four decades.
Apart from the standstill leasing activity, the office real estate is witnessing the reverse movement too. The report mentions about 6.3 million square feet being surrendered during the same period. Topping the charts in this context is Bengaluru which accounted for more than half of it as companies looked to curtail fixed operational costs. Many startups which could not sustain the pressure put on by the Covid-19 crisis, have given up their spaces.
Bengaluru has been the base for IT and ITES companies including Infosys Ltd., Wipro Ltd., Flipkart, Cisco, Amazon, Microsoft, and Google. Some of these companies have declared work-from-home to continue until 2021 while some have declared it as a permanent feature. No wonder, the city is seeing a sudden jump in vacancy from 4.8% in second half of 2019 to 6.5% as of June 2020, according to the report.
Some of the firms that have given up the spaces in Bengaluru are Accenture, Infosys, GEC, HCL, HUL, Swiggy, Genpact among others, according to Bloomberg Quint.
Other key highlights in the Knight Frank report said that office rents, which were growing in the past five years, have become stagnated since April in Bengaluru. Also, it is mentioned that occupiers reach out to landlords for partial rent or maintenance cost waiver for the lockdown period.
Meanwhile, developers in India’s Silicon Valley however denied the alarming trend, saying the extent of the impact is much lower. Thirumal Govindraj, MD, executive board, RMZ Corp told Bloomberg Quint that markets will see some cyclical corrections and the pandemic will put some pressure but the industry isn’t falling apart. Noteworthy here is that RBZ owns office buildings in Bengaluru, Chennai, Hyderabad, Delhi-NCR, Pune and Mumbai, and counts Accenture, Google Inc., HSBC Holdings Plc., Dell, Honeywell International Inc., Morgan Stanley, Reliance Industries Ltd. and Cisco Systems Inc. among its occupiers.
“This is not a new phenomenon. Every year, 15-20% space comes back into the market as hard options,” he said. “Knight Frank has just taken the hard option numbers and spun it around as covid story.”