The coronavirus pandemic and the subsequent lockdown have put several commercials deals across the country on hold and the trend is likely to continue, depending on how much time the country takes to tackle COVID 19. However, the market may stabilise in the fourth quarter of 2020, say real estate experts.
“It is highly unlikely that these deals may see fruition or investors may come flocking back once the lockdown is lifted. It is also unlikely that there would be rush to deploy funds post June. Activity in commercial real estate may pick in a phased manner and is likely to pick up during the festive season around the fourth quarter,” said experts.
Deals are getting deferred. Investors are in a wait-and-watch mode as there is still not much clarity on the impact of COVID-19. As and when they return to the table, they would first start investing in a phased manner, said a transaction expert.
Several commercial transactions that were in advanced stages and were expected to be sealed towards the end of the financial year are all on hold due to the outbreak of COVID-19 and the lockdown.
“While the quantum cannot be ascertained as of now, there will be a sizable section of deals that will either be put on hold or will see delayed action. It will also depend on the time it takes for India to be COVID-19 free and how India approaches that,” says Shobhit Agarwal, MD & CEO – ANAROCK Capital.
The majority of investments were expected from the USA, Singapore and other sovereign funds across the globe, he says.
According to data made available by Anarock Research, 2019 witnessed PE fund inflow in excess of USD 5 bn. Before COVID-19, it was expected to be around the same number, if not more.
Real estate experts are of the view that even if one were to take into account the next two quarters, the deal volume is likely to be reduced half or around $2.5 billion as “investors would not rush to invest immediately post June”.
According to Samantak Das, Executive Director and Head of Research – REIS, JLL, real estate investments in India during Jan-Mar 2020 period have declined sharply to estimated $712 million as compared to $1,704 million during the same period in 2019.
“Restriction on movement of people and lack of clarity on impact of COVID-19 pandemic on the economy have led to slowdown in the investment cycle. Sovereign wealth funds affected due to sharp fall in crude prices and general economic stress are likely to reduce their investments,” he told Moneycontrol.
As per Colliers, India’s office sector, which has seen a robust run over the last three years, is likely to see lower gross absorption of about 45-50 million sq feet (4.1-4.6 million sq metres) in 2020 which is 17-30 percent lower than 2019, owing to delays in decision making arising from the ongoing COVID-19 outbreak.
In the next six months, if COVID-19 in India is not contained and business operations suffer, occupiers may initiate renegotiation of leases or ask for some relief from developers/landlords over elements such as lock-in amount, fixed deposit, to cope with likely increased financial pressure.
Megha Maan, Senior Associate Director – Research Colliers International India, said, “Occupiers are likely to delay leasing decisions by a quarter, with some even taking a watch-and-watch stance. If the current lockdown extends beyond April 15, 2020, we can expect delayed decision-making up to two quarters.”
These private equity investments were concentrated primarily in top six cities – Delhi NCR, Bengaluru, Mumbai, Pune, Chennai and Hyderabad. Many established real estate developers also planned joint ventures and development management agreements.
“Everything is on hold and there is no demand. Investors are also not in a hurry to deploy funds. It’s akin to someone having pressed the pause button,” say experts.
As for the valuation of these assets, that would depend on the demand and supply dynamics at that point in time.
“While it is difficult to put a number to it, valuation of assets will definitely be impacted and will largely be dependent on the demand and supply dynamics in a particular micro market. There is also a possibility of sellers not wanting to sell beyond a certain threshold. It response will be opportunistic,” say transaction experts.
Current advisories restricting travel following concerns over the coronavirus pandemic have also led to delays in decisions on commercial real estate space take-up.
“Some delayed decision making by occupiers who depend on clearances from overseas, especially Asia are expected,” a report by Colliers titled ‘COVID-19: Impact on India Real Estate’ has said.
In 2019, institutional investments from Singapore, Hong Kong and mainland China together accounted for 28 percent of total real estate investment in India. However, slower decision-making in H1 2020 is foreseen which could constrain capital deployment in India, the report said.
As over two-thirds of the Indian office demand emanates from multinational companies from Europe and the USA, economic slowdown in these countries may impact medium term demand for offices in India, an analysis by ICICI Securities has said.
“Pre-leased upcoming supply and near-term deals in the leasing pipeline may get deferred by one or two quarters depending on how the COVID-19 situation evolves. We see any COVID-19 induced economic slowdown in the USA and Europe over the medium term as a bigger risk to Indian office demand in CY21-22E,” it said.
“The evolving global situation owing to the coronavirus threatens to spoil the party,” the analysis added.
(Source: Moneycontrol)
