In 2019, India recorded the highest-ever office net absorption of 47 million Sqft in its top 8 cities, and it was being observed that in 2020, the office segment would achieve new heights. Commercial real estate alone witnessed record absorption across top cities, with an investment flow of USD 2.8 billion in 2019, which was led by steady growth in demand for co-working spaces, led by tech companies. However, with the outbreak of the coronavirus in March, a nationwide lockdown followed, which meant that everything was shut down, leading to businesses going to a standstill. There was also substantial slowdown of the economy, and even after the country gradually started to open up, work from home continued to be the norm.
The lockdown has had an enormous impact on businesses, and the demand for office spaces has dropped as compared to last year. Many firms have extended the work from home option for employees owing to the safety provisions, and many people have started predicting that in future, firms will have to move from their conventional office space and switch to a smarter workspace. This trend, if it continues, will surely stand in the way of realtors as it will have an adverse impact on the demand for office spaces.
According to a Knight Frank survey, there was a 37 per cent year-on-year drop in office transactions to 17.2 million square feet in the first half of 2020 in the top eight cities, which was the steepest in a decade. Office space surrendered during the period stood at 6.3 million square feet, and Bengaluru alone accounted for more than half of it as companies looked to curtail fixed operational costs. The survey also reported that rents, which had been growing in the last five years, had stagnated since April and occupiers had also been reaching out to landlords for partial rent or maintenance cost waiver for the period during the lockdown.
However, at this point, it is essential to remember that despite the constraints owing to the current situation caused due to the pandemic, the need for physical offices will not wither away. Of course, hygiene will be of utmost importance in a post-COVID world, and companies will have to ensure the regular sanitization of their premises. Moreover, architects and designers will have to redesign the new workplaces keeping the social distancing norms in mind. As the coronavirus spreads through the droplets of infected people, companies would also need to include regular disinfection scheduled to redress the problem of transmission via droplets. The traditional way in which we have been using air-conditioning in our offices would also need a re-think to avoid the risk of community infection.
Moreover, not all is gloomy. In the first quarter, the office segment has shown nearly 98-99 per cent rent collection and low relevant micro-market vacancies along with some marginal rental growth, which is an example of its sustainability. Moreover, the retail and institutional investors are now launching REITS, and the Mindspace Business Parks REIT launched in August this year received a positive response. Furthermore, as more and more businesses are undergoing a digital transformation, the demand for data centres is also expected to rise in future, and they are expected to be the next best alternate investment space in real estate in the times to come. Therefore, despite the disruption caused by the pandemic, it is too soon to write off the office sector.