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Tech & Retail: Commercial rentals may come under pressure in post Covid-19 era

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Bengaluru | Hyderabad | Chennai: Real estate rentals for office and retail spaces may fall a bit or remain sedate in the technology hubs of Bengaluru and Hyderabad, as the economy slowly shifts gear with the cautious opening up of business and manufacturing activities amid the Covid-19 pandemic.

A recent report from real estate firm Cushman & Wakefield said anticipation of a longer shutdown and revenue loss was pushing Bengaluru retailers to ask for longer rent abatements or re-working of rent pacts until recovery. As for Hyderabad, it said, office demand and net absorption over the next 12 months were likely to soften.

An executive at a global software firm said his company would ask for office space for fewer employees while renewing lease agreements, or seek discounts. While cash-rich companies are likely to continue with existing space, midsize firms would look for discounts or stick to old rentals. There is no way one would agree for a raise, said an IT sector analyst.

In the weeks after the clamping of the lockdown, India’s 4.3 million strong IT services industry began shifting from campuses across India to homes of employees. Nearly 85% of the workforce now work from home and companies are likely to stay with this option for a large number of their employees even after the Covid-19 crisis ends. This, industry leaders, say would significantly alter the way services are delivered.

India’s largest IT employer, Tata Consultancy Services, has already indicated that three-fourths of its nearly 5 lakh employees would work remotely by 2025. The company spends about Rs 6,000 crore a year towards real estate and the plan suggests a major change in the way it operates.

Indian IT firms have built sprawling campuses in cities such as Bengaluru, Pune, Hyderabad, Noida and Chennai to house thousands of employees who work at these offshore development centres and other facilities dedicated for clients. “Technology companies have been guzzlers of real estate. With such shifts (to work from home), real estate prices (for IT offices) could come down,” Kamal Karanth, a co-founder of specialist staffing firm Xpheno, said in a recent interview.

Referring to her landlord, an entrepreneur who runs her office at a co-working space, said: “They will be happy if their capacity is occupied. They are aware of the ground realities, and if they don’t concede now, many people might walk out and shift to work-from-home.”

“It was pretty good last year as the Bengaluru market absorbed about 13 million sq ft of commercial space,” said Kishore Jain, the president at Credai Bengaluru, a real estate body. Hospitality and retail are battling their own set of challenges, he said, adding he was unsure how long it would take for these sectors to bounce back.

“We do expect a softening of the demand given the bearish business sentiment and dynamic conversations around remote working,” said Ramita Arora, the managing director at Cushman & Wakefield in Bengaluru. Retail will see more focus on revenue shares compared with vanilla leases and innovative deal structuring. Institutional and established developers and landlords may exhibit more flexibility to occupier demands, she added.

Commercial real estate had always been vibrant, but Covid-19 has roiled it at least for the next two quarters, Anarock Property Consultants chairman Anuj Puri said. According to him, a lot also depends on the economy in the US as American multinationals are among the largest occupiers of office space in India.

The Hyderabad market, which saw occupancy of 11 million sq ft of office space last year, will see a slump this year, said an executive at a real estate firm. In the calendar year, the city may see a drop of 46% in occupancy over the last year, according to him.

Credai’s Jain disagreed with the suggestions that work-from-home could become the new normal.

“We will see some knee-jerk reaction, but companies will start calling employees back to offices as we go along. There were similar efforts in the past too, but that worked only briefly,” he added.

Consultancy firm Knight Frank’s Hyderabad director Samson Arthur, meanwhile, felt rentals might not see major changes, as he said vacancy levels were low in South India.



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Written by sortiwa

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