Commercial rentals may come down by 5-10%: Cushman and Wakefield

New Delhi, June 19, 2020: The outbreak of coronavirus disease will have a short term impact on India’s office market, with demand likely to fall by 45 per cent and rentals softening by 5-10 per cent, said Cushman & Wakefield Managing Director-India and South East Asia, Anshul Jain. The net leasing or absorption of office space may fall to 25 million sq ft this year as against 45 million sq ft during 2019, he projected.

Jain, however, was bullish on the medium-to-long term growth prospects of the office market in India, which he said would continue to be an attractive destination for outsourcing of various kinds of jobs. The de-densification of office space would largely compensate for any fall in demand due to the adoption of Work From Home (WFH) policy by corporates, he added.

Jain was speaking at a webinar organized by Workplace Trends India founder Tushar Mittal, who also heads interior design firm SKV. The other speaker at the webinar was Chris Browne, Managing Director, Head of Global Occupier Services, Asia Pacific, Cushman and Wakefield.

“The commercial real estate rental situation at present is very different from the Global Financial Crisis situation of 2008-09, when the supply outstripped demand, we were in an oversupplied situation then, right now we are not in an oversupply situation. Having said that there will be short-term softness in the market and I think the rentals may come down in some pockets between 5 and 10 per cent,” Jain said.

Stating that the fundamentals of Indian economy remain intact despite the coronavirus pandemic, Jain said India might gain eventually. “I think our fundamentals are still in place, the factor advantage in terms of young working population, english speaking and top of it, skill set is increasing very significantly. Besides that, chances are that even in 2021 or 2022 we will be at 2019 wage levels, because there has been no wage growth this year. Instead, there is wage deflation this year. In 2021, the companies may possibly look at restoring salaries but may decide not to give further increments depending on the overall state of the economy. So by the end of 2021 and 2022 your wages would be at 2019 levels,” Jain observed.

Mittal asked who all can derive benefits from the situation. Explaining further, Jain said: “if I am a BPO, in 2022, my wages are at 2019 level, in real terms there is a big saving, my rentals are 5 to 10 % less and the dollar has appreciated by 10 %, so my cost advantage for India becomes huge. So, I think medium term prospects for India remain very strong.”

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Echoing Jain’s views, Browne said India could benefit from this pandemic due to cost pressure in other countries.

“I work for multinational companies (MNCs) and most of the clients are western MNCs and they all have a presence in India. I think with the cost pressure they are facing they are looking for alternate solutions. With the quality and amount of talent in India as well as improvement in infrastructure, I think this is going to mitigate some or the other financial impacts on sectors like real estate. So I see key markets like India as a beneficiary,” Browne said.

Mittal, too, felt that India would remain a good market for a lot of global companies. “Contrary to general thought and expectations, few of our clients for whom we were about to start interior work have asked us to wait, they are considering increasing the space of the office, as they are expecting more business coming to their way,” said Mittal.

When Mittal asked how the office leasing market is expected to perform post Covid, Jain said the demand may rise post Covid. “The reason behind this, especially in the case of India is that we were squeezing more and more people in the square foot that we had. About 7 to 10 years ago we were talking of about 100 to 120 square feet per person, and most of the company today were talking of 60-80 square feet per person depending upon who you are, now that’s going to change, we may see an increase in space per person,” said Jain

On WFH policy, Jain said the companies would certainly give more flexibility to employees. “Work from home will gain strength, but that may be just 10-15% of the workforce.” However, Jain said the work from home would be a very challenging proposition in India because of lack of proper physical and IT infrastructure.

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“Work from home is very difficult in south Asian countries, including India. The average people working in the company are 27-28 years old, most of them are either living with their parents in a small house or living with their friends, friends could be working for competitors and this can create problems. Other deterrents are electricity shedding off, Wi-Fi breaking down and so on. The cost of work from home in home office set up and individual broadband connection could be humongous”

Regarding the impact of Covid-19 on the residential sector, Jain said the housing prices were currently ruling at lower than 2012 level and there was minimal scope of further correction. He advised fence sitters to purchase residential properties as this could be good any other time, it’s hard to predict the bottom most point of the market and waiting for that is futile.