Do you know that amidst lockdown announcements, Cognizant reported to have transported 70, 000 desktops from their offices to its employees to enable them to work from home? Reports say that mid-sized NBFC Clix Capital reportedly is planning to give-up half of its office space amounting to 40,000 sq ft as nearly 50 percent of its work force will now permanently work from home. IT companies like Deloitte, KPMG and Accenture, who used to form a major chunk of space occupiers in office real estate, said to be considering adapting work from home model post lockdown as well. Work from home is indeed going to be the biggest takeaway from coronavirus-induced lockdown.
Commercial real estate, especially office spaces, has been the blue-eyed boy of the Indian real estate sector. The segment has been attracting substantial investment activity in pre-pandemic months. However, this rising culture of work from home is posing a threat to if not to its existence but definitely to the future demand. It is being estimated that half-a-million sq ft of office space are soon to be vacated.
Impact of COVID-19 On Office Real Estate
The impact of COVID-19 is now clearly visible in every business sector. Talking about office real estate, In the first two weeks of April, almost three-quarters (73 percent) of the Asia Pacific region’s 15 major office markets recorded a decline in leasing activity, as per Knight Frank’s Asia-Pacific April 2020 Market Bulletin: COVID-19 and its impact on real estate.
With major uncertainty looming around global demand, disrupted supply chains and crunch in cash flow leading to a delay in decisions, many international commercial occupiers are postponing leasing deals.
Supply side has its own issues. The lockdown has halted construction activities which will delay new supply; 19 mn sq. ft in the form of IT parks and offices in different stages of construction is expected over the coming years.
Is Work From Home Going To Be The ‘New Normal’?
Present time is undoubtedly going to bring a paradigm shift in how people have been working until now. As the firms have tried and tested the model of work from home in the lockdown times, they are more than ever ready to go away at least a portion of the expensive office space they have been acquiring all this while. In fact, many IT and ITES firms have declared that even when they open up post lockdown, about 25-50% of their executives will continue to work from home.
Not only IT companies but the BFSI sector, another major occupier, is planning their future course of action on the same lines. As per a report, Axis Bank is working on a plan to implement regular work-from-home guidelines for 2-3 days of the week.
“We are looking at 2-3 day flexible work-from-home model for 30% of our corporate office staff, we have experimented with this and are fairly confident that this will work,” ET Realty quoted Rajesh Dahiya, executive director, Axis Bank, as saying.
RBL too is reported to have asked its admin team to pilot work from home models which could help it eventually give up one of their large office spaces.
Or Work From Home Is Just A Temporary Arrangement?
On the other hand, there are counter views according to which the trend is temporary.
It is also being said that home offices, no matter how plush, are not an ideal work environment for all workers owing to distractions and lack of discipline and self-motivation. For a productive workforce, collaboration and constant communication is important which happens when employees are working side by side.
Post COVID-19, employees might not be working in close contact anytime sooner yet offices will adapt to the “new normal.” Companies might like to move out of dense office set ups and in fact, will need more space, not less, as they reconfigure to accommodate for social distancing.
In a forecast, CBRE predicts that after hitting $35.66 per square foot per year in the first quarter of 2020, the average office rent will hit a low of $33.23 in the fourth quarter and then gradually recover by the first quarter of 2022.
CBRE further says that 72% companies will do a phased reopening of their offices. Just about half said they expect to give employees the option to work from home for the foreseeable future, depending on the kind of work.
Definitely, it is too early to write-off office real estate. At the same time, work from home model has been tested and approved. Big corporates as well as smaller firms will love to shed off extra office spaces now that they have figured out the best ways of working from home and rotational office hours. Shedding off some of the office space will only help them arrest cash flows in this difficult times.
Even when the lockdown is lifted, the danger of COVID-19 is not going to vanish overnight. Social distancing is here to stay for a while and so will be work from home model.