Office space leasing may fall 30% in 2020 due to Covid-19: JLL India CEO
Ramesh Nair, JLL India CEO said that the ‘work for home’ policy would have an adverse impact on office demand, but added that the need for larger space to maintain social distancing could compensate some of the possible loss in demand.
The demand for office space across seven major cities is likely to drop around 30 per cent this year from record leasing in 2019 as corporates have deferred expansion plans due to the Covid-19 pandemic, JLL India CEO and Country Head Ramesh Nair said.
JLL India, part of US-based JLL, is a leading property consultant with a turnover of over Rs 4,000 crore in the last financial year.
In an interview with PTI, Nair said, “We expect office space leasing to fall by around 30 per cent during 2020. Supply will also drop by 30-40 per cent as speculative construction will stop.” In 2019, JLL India had reported a net leasing of 46.5 million sq ft, an all-time high.
Asked about the rental outlook, Nair said, “Rentals will remain largely stable. Not too much of reductions in rentals because supply is being pushed out and vacancies are still low.” Real estate developers owning Grade-A office buildings have reported 92-98 per cent of rent collections during the lockdown period, he said.
Talking about the trend in the office market, Nair said the corporates have cut their requirements for office space in area terms by 20 per cent and are also negotiating for better terms, such as increased rent-free period for doing interiors before occupying the space.
The rentals for renewals, too, are being re-evaluated, he added.
Nair said the corporates have started adopting the ‘work for home’ in their HR policies, as a result around 15 per cent of corporate workforce are expected to work from home at any given point of time.
The ‘work for home’ policy would have an adverse impact on office demand, he said but added that the need for larger space to maintain social distancing could compensate some of the possible loss in demand.
Nair said the space per employee had dropped to an average 80 sq ft per employees from 100-120 sq ft but this could again rise.
On residential real estate, he said the housing sales have improved of late but it was only 30 per cent of the pre-Covid-19 level.
“Sales cycles have not collapsed. April was bad but May-June is better,” Nair said, and mentioned about the increased demand from non-resident Indians (NRIs) due to rupee depreciation.
He did not give the sales outlook for the full calendar year 2020 but said the new launches will fall drastically.
Interest rates on home loans are the lowest in 15 years that could drive housing demand, he said.
The real estate developers, who have a stressed balance sheet and no capacity to hold units, are offering 5-7 per cent discount in the mid- and affordable segment and 10-12 per cent in luxury properties, Nair said.
“Room for massive price drop is limited. Many developers are operating on a single-digit margin,” he said.
Nair said housing prices have increased only by around 40 per cent in the past one decade.
“There is a pent-up demand in the housing market. Volatility in the stock market will also prompt people to look at residential properties positively,” he said.
The consultant said the coronavirus pandemic would definitely force developers to change the design of their future residential and commercial projects.
On the retail real estate, Nair said this segment has been the most affected and expected vacancies in shopping malls to rise.
Mall owners and retailers need to be reasonable to tide over this crisis, he added.
Nair said the warehousing and industrial space segment has been least impacted on account of a rise in e-commerce.
The demand for “in-city” warehouses would increase for faster delivery of goods to customers, he said.
Nair said the government’s focus on ‘Make in India’ and possible shift of manufacturing activities from China to India augur well for the warehousing and industrial space asset class.
“This is the best opportunity for India to become a manufacturing hub. We should not miss this,” he said.