The New Normal in Leasing - How is COVID-19 changing the leasing landscape?
The COVID-19 pandemic has led to an unprecedented situation. It has changed all aspects of our life, including how we work. Recently India implemented the world’s most extensive lockdown and extended it as a part of the business continuity plan across government and private enterprises. Hence, work from home (WFH) has been implemented by most organisations. However, five months into the lockdown, the real estate sector has seen a rebound in leasing because WFH is not a long-time solution for all companies. Moreover, social distancing means that companies require similar or more space to house the same number of employees.
The leasing share of sectors
There has been a significant drop in rent collection and transactional volume during COVID-19. Even as there will be a proportion of workforce working from home, from the leasing perspective, it may not have a significant impact. According to industry experts, the impact would be around 10-15 per cent on new leasing in the office workspace market. This dip will be counter-balanced by increasing demand for office spaces from sectors such as healthcare, e-commerce, FMCG and data centres.
The IT sector has the maximum share in leasing and net absorption every year. According to JLL India Real Estate Update Q1 2020 for office space, the IT/ITeS sector contributed to 56 per cent of total leasing. In 2019, the net office space leasing stood at 46.5 mn sq. ft. across seven major cities. The next sector is Banking and Finance, whose share in leasing is 10 per cent.
These sectors are expected to rebound the quickest and while some believe demand may stay muted for a while, other experts feel that recovery may be swift.
The search for safer, innovative office spaces
The coronavirus has changed the way organizations are looking at offices. As employees return to work after a long bout of WFH, companies are adopting a safety first approach.
Companies are using different strategies to de-densify their offices. Some of them include:
Alternate between work from home and office: Organizations are rotating work-from-office days for employees to make sure that only a percentage of the strength is present on any given day. Only employees, who don’t have to rely on public transport, are given the choice to work from office.
Move to a two-shift system: Instead of a 9-6 routine, many companies are now experimenting with a two-shift system. This helps them reduce the number of people in office and also enables employees beat rush hour congestion (not just on their daily commutes, but also inside office complexes, especially elevators).
Complexes that use innovative technology to minimize contact and maximize social distance will find greater favour. People will prefer to work in set-ups which have open spaces, high-tech security and safety measures, sufficient parking spaces, bank of elevators to ensure distancing is maintained even inside lifts etc. Essentially complexes that have adapted to the changed circumstances and provide a safe and heathy work environment.
What do the retailers want?
Retailers are looking for more open, expansive spaces like retail parks where they could handle social distancing better. Then they want outlet points where tenants can distribute excess inventory. There is also a greater demand for smarter technology to manage the crowd and queues. Even for cinema theatres, technology will play a big part in the movie-going experience as they shift to digital tickets and concessional sales. Companies would need to adopt safety measures such as six-feet social distancing, the use of face masks and checking temperatures before allowing people in. Venues are looking to reduce physical interactions as much as possible.
Future trends such as consolidation of office spaces and densification will be reversed; de-densification and splitting up of offices will be the norm to ensure business continuity. The need for de-densification will further drive office leasing demand. For example, 100 people would still require the same office space that housed 200 people before because of social distancing norms in place. Hence, though the demand for office leasing space could see a decline in the short term, things would probably bounce back to normal as soon as the situation improves, which could be as early as the fourth quarter of 2020. Most observers expect demand for office leasing space to improve as we enter into 2021.