How will the commercial real estate fare post lockdown?

The global economic growth has been hit hard by the lockdown forced by the Covid-19 pandemic. Social distancing has emerged as the only choice to contain the corona spread. The impact of lockdown on the real estate sector in India is quite evident, just like other industries in the country.

A Naredco report foresees the Indian realty sector enduring losses to the tune of Rs 1 lakh crore due to the pandemic. Even the festive season this year wasn’t up to the mark for the real estate sector. In the commercial real estate sector, the impact was more visible through a delay in leases, a halt in expansion plans of office spaces, and almost negligible sales.

The experts are concerned whether the commercial real estate sector can bounce back in the post-Covid-19 era or not. The government is already taking a series of proactive measures to arrest the spread of the pandemic through various measures.

As per Savills report, 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. 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.

In the first three quarters of 2019 alone, it attracted private equity investments to the tune of approximately $3 billion. Going forward, the commercial real estate is likely to continue attracting investors. The sector has been further enhanced by the falling gold and crude oil prices in the current scenario.

With an increased marginalisation of China, India can become a favourite destination for manufacturing companies. 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.

There is likely to be a greater focus on automation, mechanization among other alternatives to reduce the dependency on labour. The COVID-19 crisis has instilled an awareness of geography-specific supply chain challenges. The developers will increasingly seek alternative suppliers, build a comprehensive backup model to overcome disruption in supply chain management.

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