Office sector expected to lead post-Covid-19 recovery in real estate sector: Report

India’s real estate sector –both the residential as well as the commercial segment – has been impacted by the Covid-19 pandemic. The industry will need to reconsider pre-crisis priorities and accelerate new strategic initiatives to adapt to a “next normal”, according to a report by global realty firm JLL.

“Real estate as an asset class is here to stay; however, it is inevitable to reinvent, to stay relevant in this new paradigm. It is indisputable that the pandemic induced disruption is changing the rules of the game, but also accelerating the increased adoption of technology and artificial intelligence (AI) in processes ranging from marketing and sales to loan modelling and data management,” said Ramesh Nair, CEO and Country Head (India), JLL.

While the office sector is expected to lead the recovery cycle in the real estate sector, the green shoots of recovery in residential sector will be in tandem with overall economic growth, said the report titled “The Next Normal – Real Estate in Post COVID World,” released on Monday.

The pandemic has resulted in homebuyers putting on hold their decision to buy houses which led to a 30% decline in sales in the first quarter of 2020, said the report

According to top developers surveyed in residential sector, there are Indications of price rationalization in Delhi NCR, Bengaluru, Chennai and Kolkata. Construction activities are expected to gradually resume nationwide and in major cities, projects are resuming.

The report says that sales in affordable and mid segments are expected to start recovering towards the end of the year.

“Residential market’s revival hinges on intensity and duration of the pandemic. As consumer sentiments improve post the lockdown period, sales in the affordable and mid segments are expected to show initial green shoots of recovery towards the end of 2020, with the onset of the festive season,” the report pointed out.

For the office real estate market, the JLL report said that as a result of the pandemic, re-negotiation of contracts between landlords and occupiers is the underlying trend in the short term as the first quarter of the year saw the net absorption fall by 30%, ie, to 8.6 million sq ft, mirroring the moderation of quarterly economic growth to 3.1%.

According to top developers surveyed in the office sector, many are looking at Common Area Maintenance (CAM) charges discount or waivers. This has emerged as a significant trend where landlords / developers are either agreeing or reviewing the same with occupiers.

In addition, the larger markets of Delhi-NCR and Mumbai, developers are open to discuss extra rent free period in cases of new deals. Similar trend seen in Chennai and Kolkata..

The report added that in the medium to long-term, occupiers and developers will re-evaluate their strategies. Office demand will remain robust in the medium to long-term. “The office market fundamentals are strong – with low vacancy, stable rental growth and limited upcoming supply. It is expected to recover the fastest once the outbreak is under control.”

It added that majority of the construction activity has largely resumed across the cities except Chennai where it has been slow.

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