Will commercial real estate bounce back post the COVID-19 crisis?

The magnitude of the pandemic has sparked concerns on whether the economy will revive and if the commercial real estate sector can bounce back or not.

It is to be noted that COVID-19 is but a passing phase. The government is already taking a series of proactive measures to arrest the spread of the pandemic through a nationwide lockdown and social distancing. These measures have met with great success till now as evident through a linear rather than exponential pattern of growth in COVID-19 cases. In fact, the entire world is amazed at the way India has managed to contain the spread of this deadly virus so far.

One of the report highlights that the post-COVID-19 scenario will give a fresh start to the realty sector with greater intensity and vigour than it was in the pre-COVID stage. It is noteworthy that the commercial real estate segment has been insulated from the slowdown in the past. Riding the wave of absorptions, relocations, expansions in the past 18 months, it has been on the investors’ radar. With increased marginalisation of China by almost all the countries of the world, India can become a favourite destination for manufacturing companies.

Furthermore, with the current prices being at a record low level, these are henceforth expected to rise owing to a huge pent-up demand once the lockdown is lifted.

According to a report by ICRA, the office space segment will be somewhat resilient to the slowdown with rents likely to be paid on time as they comprise a miniscule portion of firms’ overheads. Going forward, the Business Process Outsourcing (BPO) and IT/ITes segments are expected to propel the demand for office spaces. It is also expected that industrial, frontier segments like co-living will thrive due to their good return potential.

Architectural changes in office buildings such as better ventilation, social distancing etc. will cater for recurrence of Covid 19 like situations. Also, there will be a renewed focus on co-working spaces as consumers will increasingly seek flexible working models. Until then, it can be concluded that COVID-19 is an inflection point for commercial real estate with developers struggling to strike a balance between ensuring compliance to policy regulations, financing, market demand and labour shortage.