As the countdown to 2021 begins, we need to pause and revisit “the year 2020”. What started off as an exceptional year, beset with high expectations, was brought to a grinding halt by the COVID-19 pandemic.
The real estate sector had just about come out of the shadows of RERA and GST, showing traction in the residential segment and record levels of supply and absorption on the commercial front in 2019, when the pandemic struck and brought things to a standstill.
Here we take a look at each of the real estate classes and where they stand at the end of this year:
Summing up 2020
The office market in 2019 saw a peak of 58.6 million sqft space absorption across the top 7 cities of the country. By the end of the year 2020, however, the market is expected to witness an absorption shrink of 46% bringing it down to 31.8 million sqft. This contraction was primarily due to uncertainty brought about by the COVID-19 outbreak which led corporates to defer their expansion plans/fresh offtake decisions on commercial spaces. The tech hubs of Bengaluru and Hyderabad were substantially impacted. However, there has been relative recovery in the third quarter of the year, signifying strong market fundamentals.
Residential sector was already in a tough phase with most home buyers’ fence-sitting and sources of liquidity fast drying up. The situation was further exacerbated by the COVID-19 crisis which led market demand to plummet over 70% on an annual basis. By the third quarter of the year, the residential market began to see a considerable uptick in buyer inquiries, a sizable share translating to sales. Moreover, decrease in home loan interest rates, the lowest in almost 15 years, was a huge trigger for end-users and investors alike.
The harshest blow, however, was to the retail realty sector, with retail projects and F&B segment the first ones to shut down. With the gradual easing of lockdown and opening up of the economy, mall owners are now being optimistic about the growth prospects of India’s retail sector – a number of them having evinced interest in continuing to build new projects as well as look for acquisitions to expand their businesses. To the relief of most mall owners, demand is trickling back in shopping malls, the premium ones witnessing better traction than the others.
2020: A period of greater learning
If anything, this crisis has imparted that extraordinary events have a penchant to catalyse and kick-start new environments that are more meaningful and sustainable than the previous period.
The Work from Home Conundrum – a much-required change or a challenge?
With the onset of the pandemic, stringent lockdowns became the order of the day and transition to WFH was the only way to ensure business continuity. Add to it, technology has fairly established that the modern office worker can work from anywhere, anytime. Therein lies the WFH conundrum – would it take away the need for of an office? And yet, as the year progressed and people continued to WFH, it became apparent that despite the virtues of WFH, there is an ardent need for social connection for businesses to perform efficiently and thrive in the long term.
Re-imagining workplaces in 2020 amid the disruption
Corporates were compelled to review their office space requirements and operations in a new light. Right from office design to the type of office space be it hybrid or hub and spoke, to integrating well-being into regular office operation – the workplace is now evolving at a faster pace. There is a major shift towards efficient workspaces that promote the health and wellness of employees and are resilient as well.
Upskilling the workforce
One of the major learnings of the year has been to build resiliency into businesses. Organisations have realised the need for people to adapt and inculcate new skills to navigate future disruptions more efficiently. In the future, greater significance would be imparted to Artificial Intelligence in operations. That said, the ‘human factor’ will still be a key component of the industry and emphasis would be laid on developing and hiring skilled manpower.
Innovation and technology to the fore
Technology adoption and innovation in the sector, now, is going to be fast-paced and inevitable in order to mitigate the risks associated with such unprecedented events. Developers and brokerage firms have re-aligned their businesses to digital platforms, with property portals reporting a huge surge in enquiries as customers found it easier to search for properties online.
Increased significance of owning a home
The year also saw a strong leaning towards home ownership, driven by the need for security and additional space to work during the pandemic-induced lockdowns. While there had been a gradual shift in the past few years amongst millennials and first home buyers towards rental housing, the COVID-19 outbreak has tilted the scales towards home ownership. Besides, favourable home loan interest rates and the stability offered by real estate investments have also worked in its favour.
Reverse migration and the growing attraction of smaller cities
Another interesting trend witnessed during the year was the reverse migration of people – right from daily wage earners to white-collared employees leaving metros for tier II and III cities. This has shifted the focus of future growth to the non-metro cities. Factors such as the government relaxing rules to enable WFH, increased impetus to e-commerce growth and manufacturing, affordability, improved road and air connectivity, growth of local industries and other conducive aspects have contributed towards strengthening the attractiveness quotient of these regions.
Warehousing and data centres in the spotlight
The warehousing and logistics sector in India has gained prominence, if somewhat in a difficult environment, based on increased demand for space to cater to the surge in goods and provisions, owing to a substantial rise in e-commerce. Meanwhile, the rapid increase in data generation and consumption, as well as cloud adoption, has augmented the need for data centres in India. Today, with small and mid-sized firms also transitioning into technology-led businesses, there is a greater need for data centres.
Conclusion
The effects of the pandemic on the real estate sector are quite apparent today, via the downward shift perceptible in every asset class as compared with the previous year. While the industry is no stranger to tough times, this would perhaps, be the only time that we have strived to surmount it by creating a new normal. With a vaccine on the horizon and gradual return to normalcy, we envisage the worst to have passed and the sector to hold hope for revival in the forthcoming period, taking into consideration the lessons learnt in 2020.