Corporations are re-examining their commercial real estate strategies amid government-imposed lockdowns and work-from-home arrangements resulting from the COVID-19 pandemic. However, India’s office market across seven major cities has remained resilient in the first quarter of 2020 despite challenges. Approximately, 52-mn sq ft of Grade A office space was completed and more than 46 mn sq ft absorbed in 2019 according to JLL data.
Ramesh Nair, CEO and Country Head, India, JLL, said, “The intensity and duration of the current health crisis has shown impact across economies and businesses. Corporates are re-evaluating their commercial real estate strategies, working towards making them resilient to such unprecedented shocks. However, we expect the office to remain at the core of corporates’ real estate strategies. Emphasis on employee wellbeing, sustainability, business continuity planning and adoption of flexible working practices while reducing incremental capital expenditure will take centre stage. While remote working strategies will be an integral component of flexible working practices, it will at best complement the working culture, which prevailed in the pre-COVID-19 scenario.”
As companies prioritise the health and safety of their employees and implement social distancing to re-enter workplaces, changes to office real estate will be inevitable, according to a new report published by JLL. CEOs are re-examining strategies and may consider recalibrating the amount of space dedicated to traditional office space upon lease expiry, or even before.
However, despite current headwinds, JLL believes the office is here to stay. In fact, in some cases the pandemic may lead to an expansion of office space, as companies try to increase physical distancing among their employees. Current office configurations may be modified, increasing the need for additional space. In doing so, occupiers may consider tapping into flexible space from third-party operators, alongside continued remote working for some employees.
Not all remote working is created equal
Despite a seemingly successful work-from-home experiment globally, offices will continue to be sought after in this region. Although the pandemic has shifted perceptions around the effectiveness of remote working, it has not presented a sustainable or optimal long-term solution for all corporates. Working from home presents several challenges, more so for a country like India with most people staying in joint families. Work from home could be, at best, a supplement to the traditional way of working from office and could impact the office market demand by up to 15% in the medium to long term. Increasing demand for office spaces from emerging sectors such as healthcare, FMCG, e-commerce and data centres will be the new drivers of office demand. The fundamentals of office market remains strong, with low vacancy, stable rental growth and limited upcoming supply in the next few years. Thus, office is expected to be the first one to recover followed by the residential sector.
Demand for office design and fit-out
As the needs of occupiers evolve, the primary change that will hit offices is the redesigning of spaces. There will be a focus on delivering the highest and most efficient use of square footage to meet an organisation’s objectives.
Impact on flexible spaces and coworking
The share of co-working operators in total Grade A office leasing increased from merely 5% in 2017 to around 13% in the first quarter of 2020. Many new players have entered the market and today, there are more than 350 co-working players in India. Consolidation will garner pace with unorganized operators giving up spaces or tying up with larger players. Necessary design changes will be required to adapt to the post COVID-19 scenario norms of de-densification. The more reputed and organized operators might have to re-evaluate their strategy with enhanced focus on managed office spaces and neighborhood centers. Companies might follow a hub and spoke model, which will lead to splitting up of offices and increasing demand for office spaces closer to residential neighborhoods. With corporate occupiers looking at deferring any kind of capital expenditure in the short to medium term, there is likely to be an increased demand for managed office spaces and co-working operators can tap this demand in the coming period.
Having a flexible business plan will align with certain occupier goals during the current environment, especially related to capital expenditure. However, corporates need to be diligent in selecting strong flex space providers, given projections around consolidation in the industry.
Meanwhile, some companies have been incorporating flexible spaces as part of their office portfolios to attract and retain top talent.