The Coronavirus outbreak, which originated in China, has infected lakhs of people worldwide. Simultaneously, it has disrupted industries, trade, and business cycles, thus halting global economic activity significantly. Indian real estate sector, which was already struggling to re-emerge from the past turbulence of structural changes, policy reforms, and the liquidity crisis, is now set to witness another major fallout.
In usual times, the ongoing period normally sees an uptick in real estate activities owing to festivals like Ugadi, Gudi Padwa, Akshaya Tritiya and Navaratri when new launches and sales spike up. Unfortunately, 2020 seems to be different. Country-wide lockdown until the first week of May has halted all activities. As evident, project sites are shut, site visits have stopped, and construction activity has come to a grinding halt, eventually impacting housing sales. Also, developers have deferred their new project launches for an unknown period. Commercial real estate has also not been immune to the Covid-19 fallout.
Corporate occupiers are seen delaying their leasing decisions and still several MNCs and businesses are testing new waters of the work-from-home option. If proved successful, it could impact leasing activities in the future. Retail businesses, highly dependent on consumer spending, are also witnessing a momentary slowdown and reduced interest from global brands who may now consider revising their expansion plans.
Indian commercial office sector has been on a growth trajectory with corporate expansions led space absorption attaining a peak in 2019. Major occupiers committed to large spaces to accommodate their ambitious growth plans. Despite global slowdown early this year due to trade war, Indian office market remained insulated as occupiers looked to expand their operations.
Ability of Indian cities of offering sub-dollar rental values for ITeS companies and sub-one and half dollar rental values for IT companies drove consistent growth in leasing. Net absorption in top 7 cities was recorded at 40 Mn sf in 2019, growing by 19% over 2018. New completions also kept pace with rising demand and stood at 46.5 Mn sf in 2019, recording 21% yearly growth. Overall vacancy remained almost stable at 14.4% by 2019-end. However, this vigorous run of office real estate over last three years is expected to witness some deceleration in 2020. Shrinking Indian economic growth coupled with global economies’ sharp reaction to the ongoing COVID-19 pandemic will certainly impact Indian office segment.
As is, India’s GDP growth rate slipped to 4.7%, nearly 7-year low, in Oct-Dec 2019 quarter and amidst the current turmoil, its improvement surely seems bleak. Magnitude of the current slowdown on office segment is tough to predict as the world, particularly the First World, is still reeling under the impact of the virus. Considering the present scenario and assessment of past global crises in the last decade, ANAROCK Research estimates that supply and net absorption will be significantly lower in 2020. Predictions for 2020 are based on previous period of sluggish demand experienced in India during 2012-14 and the global economic crisis of 2008. Both these periods seem relevant as the Indian office segment has a direct and proportionate correlation with economic activities. It is also heavily dependent on global companies that expanded their operations in India and have been driving demand for Indian office real estate.