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‘REITS, Office Space Have Bright Future’
Commercial real estate has managed to negate any adverse impact caused by the pandemic. The resounding success of REIT, dynamic changes at the work place, and a bright future for office space holds true, Anshuman Magazine, Chairman & CEO – CBRE India, South East Asia, Middle East & Africa Excerpts:
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What is the current scenario across commercial sector and impact of Covid-19 on it?
India’s real estate market has grown tremendously in the past decade. Robust occupier interest, the rise of organised real estate developers and the entry of institutional capital have acted as catalysts for growth.
Due to the Covid-19 situation, every individual has had to restart, reimagine and reengineer their personal and professional lives. As a result, the market is currently in a cautious mode although the resilience of real estate has remained intact due to its strong fundamentals. Our collective Covid-19 experience has opened a new world of workplace possibilities and a different relationship between employees and their workplaces. With the slow reviving of the economy, the process of re-opening workplaces has begun in phases, with some employees returning on a split-shift basis and others continuing to work from home in order to maintain low workplace density and ensure adequate social distancing.
Despite the pandemic, India’s abundant advantages may remain intact. This would be backed by the large pool of skilled and relatively low-cost talent, supportive export-oriented policies, extensive regulatory backing to the tech sector and average rental at a dollar. In the long term, most organisations would have to relook at their office design from a technological and social distancing perspective to streamline sanitisation methods being deployed currently. Another potential shift in long-term occupier strategy would include a stronger preference for office buildings with wellness and sustainability features. We expect demand for commercial real estate to remain robust and the sector to emerge resilient.
Are office spaces going to be redundant in the new Covid normal?
There has been a lot of talk on the future of the office sector post-Covid-19. We would like to reiterate that we are confident about the growth of the office sector in the country. Despite the Covid-19, the future of office spaces remains bright. According to CBRE’s 2020 Global Occupier Sentiment Survey (conducted in June 2020), the importance of a physical office space may remain intact - 38 per cent of respondents said the physical office space will remain as important. Additionally, 70 per cent respondents were confident about setting long-term real estate strategies amid the pandemic.
Therefore, the physical office may remain a critical component of a hybrid workplace by acting as the hub or the central nervous system that connects more widely distributed employees with their companies. Perhaps the single-biggest realisation from the Covid-19 work-from-home experience is that employees really want and enjoy the power to choose when, where and even how they work. The power to choose does not mean that employees would like to work remotely all the time. Physical office still remains a desired place because it helps employees achieve a heightened level of collaboration and innovation among colleagues.
How are organisations efficiently planning for the transition back to offices and for the future?
While the commercial real estate market in India is evolving and the dynamics of the industry are changing, there is a need for corporate occupiers to plan for the future, specifically post-Covid-19. Reopening of commercial spaces will require a clear focus on ensuring that both people and commercial establishments are in safe and hygienic condition.
As workplaces reopen/draw up reopening plans, occupiers as well as developers are making all efforts to ensure that the worksites and offices are safe spaces for their employees. The new normal would involve increased focus on sanitisation, development and review of business continuity plans, enhanced deployment of technology to support daily tasks and development of workplace designs that amalgamate both social distancing and productivity.
Covid-19 has reinforced the need to pay attention to how facilities are being managed and services being delivered. With this, the organised facilities management (FM) business would also witness growth and be required to hire trained people, deploy technology-based and customised solutions. Thus, across the real estate sector, we anticipate an increased focus on installation of collaborative tech and PropTech for business, project management and FM operations.
What are the key technological innovations and automation systems that are helping companies in this phase?
Technology has emerged as the key enabler during these times. While the use of tech across real estate was a key trend in the pre-Covid-19 era; post the outbreak, this trend has accelerated. Tech such as augmented reality, virtual reality, cloud and blockchain, which were previously considered unattainable, are being widely and innovatively used. Some examples include contactless access control, AI-enabled technologies such as automated thermal cameras and face mask detection, Cloud-based working tools and video-conferencing systems, additional cleaning and maintenance technologies such as UV light to disinfect surfaces, Modern HVAC systems to ensure fresh air, ventilation, and filtration, sensor-based technologies to reduce human touch-points such as in elevators, doors, etc.
Are companies thinking about setting up small offices at staggered locations? What are the advantages and disadvantages of that?
A more distributed workforce may reduce the risk of having a single headquartered building, corporate culture and connectivity might be affected in unplanned and undesirable ways. A more distributed network of locations may offer employees shorter commute time but at greater capital and operating cost to the firm. Many different strategies are currently under discussion, but most aim to satisfy evolving workforce needs. Even before the pandemic, the physical office was being transformed to serve this hybrid world as workplaces became more flexible and agile. Although the fluidity caused due to Covid-19 has made it difficult to forecast trends in real estate, it would be reasonable to believe that the workplace would be less centralised and have more widely distributed teams that are appropriately linked through technology.
What is the potential investment opportunity for REIT in India?
Robust occupier interest, the rise of organised real estate developers and entry of institutional capital have acted as major catalysts for the growth of commercial real estate in India. The Mindspace Business Parks REIT was oversubscribed by almost 13 times speaks volumes about the confidence of investors in India’s commercial market. India’s first REIT listing – Embassy Office Parks REIT – too has had a successful run, with the IPO being oversubscribed by 2.57 times to raise Rs 4,750 crore at the time of its launch in April 2019. The REIT distributed Rs 531.7 crore to its unitholders for the quarter ending March 2020 and Rs 1,880 crore for FY2019-20. Its share price grown by 22 per cent in more than 16 months since its listing, compared with the BSE Realty Index, which contracted by 21 per cent during the same period.
India’s dynamic investment landscape, continued faith of investors in Indian real estate and sustained government support are primary reasons for the resounding success of REITs. It is also a testimony to the fact that real estate, especially commercial, continues to be looked upon as a viable investment option as India’s office sector has traditionally witnessed high occupancies backed by long pre-existing leases and lease extensions from corporates.
The REIT landscape in India is likely to further evolve to include varied asset classes in the medium to long term. While the office sector is expected to remain integral in the next few REIT listings in the country, the asset mix of REIT portfolios could thus also see some modifications as developers may add essential facilities such as data centres also. India could also see an industrial & logistics REIT in the coming years, as the sector may witness the entry of mainstream global and domestic players introducing quality space over the coming quarters. Ultimately, a healthy balance sheet, a strong management team and a well-planned portfolio would enable future REITs to tide over.
What are the major challenges and changes that the industry envisages will define the future of work?
Wellness to be key. It has never been more critical to ensure the health and safety of labour at worksites. SOPs for employees would have to be redrawn from the perspective of safety practices such as physical / social distancing, frequent sanitisation of sites, mandatory PPE and active screening of entries and exits to worksites.
Innovation to show the way forward – To build on the widespread deployment of tech, developers need to start investing in R&D, technology, digital solutions through M&A deals with tech companies or by identifying potential tech partners and upgrade their IT infrastructure accordingly. In this age of growing digitisation, C-suite priorities no longer keep IT and business solutions in isolation.