Real Estate: Amid Covid-19, how 2020 changed the sector, and what lies ahead in 2021

While 2020 has been an unprecedented year globally, it has been able to create certain unique opportunities for the real estate sector that are likely to usher in a new era of innovation and digital transformation going forward. The COVID-19 pandemic has necessitated recalibration at a systemic and individual level. The real estate sector has not remained untouched from this recalibration but has shown remarkable resilience in the face of the pandemic. As we continue to learn to live in this COVID era, the year 2021 would require us to reimagine the way we have operated so far. Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE shares low-down of how the real estate story unfolded in 2020

Office

The commercial real estate sector has made large strides in the past decade. Robust occupier interest, ascension of organized real estate developers and the emergence of institutional capital have accelerated this growth. While the COVID-19 pandemic has impacted the office sector, it could very well become the flag-bearer of recovery in the real estate sector. The quarterly growth in office space take was up by 14% from Q2 2020 – Q3 2020, with increase in absorption of space from 6.9 million sq. ft in Q2 2020 to 7.9 million sq. ft in Q3 2020. At an overarching level, the future of the workplace has been witnessing a lot of debate. Most of this debate has been centered around how office space would be used and designed, what role would tech play and what status would the workplace hold in terms of its physicality amid changing work patterns. The post-COVID-19 new normal has been characterised by the evolution of work patterns, which has altered the way both occupiers and developers have operated so far

While concepts such as wellness, workplace strategies and agility have been around for some time, their enforcement is expected to strengthen and advance further in the coming years. In addition, as operations have commenced in a phased manner, companies could in the future prefer a more distributed workforce. Therefore, it would be reasonable to believe that the workplace would be less centralized and have more widely distributed teams that are appropriately linked through technology. We are also witnessing a growing inclination towards a hybrid work model, wherein, a portion of the workforce would be able to work-from-anywhere (WFA) with the option to operate out of remote locations on certain day/s of the week. However, a majority of the firms would retain the traditional physical space model as they arrive at an optimum remote working / workforce intensity for themselves

Retail

The growth of the Indian retail sector has been marked by rapid evolution in consumer behavior and growing integration of online and offline retail formats over the past few years. Discussion around the transformation of the retail sector has intensified in recent years as the industry adopts new technologies and approaches to fulfill consumer demand. The COVID-19 pandemic has accelerated many of these trends, with e-retail quickly progressing from being a regular habit for a minority of consumers to becoming a new norm of shopping behavior. The quarterly growth in retail space take was up by 79% from Q2 2020– Q3 2020.

Going forward, upmarket and niche grocery stores are likely to expand as Indians become more health-conscious and dine at home more frequently. Within F&B, fast-food players and coffee shops would continue to expand cautiously, with rationalized spaces and a robust home -delivery model. Touchless tech would also be a key trend in this space as retailers increasingly digitize merchandising and transacting mechanisms. The role of brick-and-mortar stores would evolve from just being a point of sale ; rather they would be expected to also serve as platforms to engage consumers and amplify brands. This might require a thorough re-evaluation of the location, design and operation model of retail properties. Within retail stores, CBRE also foresees a change in space densities of fitting rooms, product testing zones, pick-up counters and stockrooms. This changing nature of the retail store is likely to spur retailers to diversify their store formats and networks. CBRE expects to see a higher number of stores with unique features and product mix – all of which would continue to operate under a cohesive brand culture

Residential

Similar to all RE sectors, the COVID-19 outbreak affected the residential sector as well, with both sales and new launches slowing down as caution pervaded the market. However, green shoots of recovery have now been witnessed as housing sales in Q3 2020 increased by a strong 86% on a quarterly basis. The apartment units covered in top 7 cities was 12 thousand units in Q2 2020, however it grew to 22 thousand units in Q3 2020. This was largely due to strong policy support, low mortgage rates, reduction in stamp duty and property registration fee (in a few states) along with incentives and attractive payment schemes offered by the developer community. as well, and the residential real estate market went in a mode of caution and wait and watch for some time. Furthermore, last-mile funding mechanisms provided by the government for delayed housing projects have helped in boosting stakeholder sentiments. This has created an enabling environment which has strengthened the confidence levels of end-users and fence-sitters.  

Going forward, we expect a gradual improvement in sales across all segments, although mid-income (INR 45 lakh to INR 1 crore) and budget (less then INR 45 lakh) categories are expected to be the key focus areas among homebuyers and are expected to perform relatively better. The two segments together accounted for a share of more than 80% in overall housing sales in YTD 2020 and are expected to dominate residential sales going forward in 2021 as well. In addition, projects launched in locations with developed physical and social infrastructure are expected to see greater traction in the coming year. Although the demand for ready-to-move-in projects is expected to be stronger, GST rate cuts for residential properties have bridged the taxation gap between an under-construction and completed project, thereby whetting the appetite for under-construction projects. Demand for ready-to-move-in projects is expected to be stronger, GST rate cuts for residential properties have bridged the taxation gap between an under-construction and completed project, thereby whetting the appetite for under-construction projects. We expect similar policy measures to continue to bolster housing demand and recovery of the residential real estate sector in the coming year. Heightened activity is, therefore, expected in leading cities such as Bangalore, Hyderabad, Mumbai, Pune and Delhi-NCR (select parts of Gurgaon and Noida).

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