Corona Virus Lock Down: Lessons That Indian Real Estate Sector Can Learn From China

As China emerges from the coronavirus lockdown, there is increased demand for home offices and commercial buildings that focus on health and safety. The Indian real estate market is expected to mirror these trends going forward, a real estate expert has said.

“As activity returns, we anticipate the residential sector would take priority given that several office and retail projects have been put on ice. Going forward, there may be growing investments into the residential segment due to cash flow reasons,” said James Shepherd, Research Head, Asia Pacific, Cushman and Wakefield at a webinar on Restarting a Country – Learnings from China organised by Cushman & Wakefield.

In the case of commercial buildings, office space requirements are expected to evolve with companies deciding to go in for healthier and safer buildings and also set aside more space per employee. This may see a rise in demand for hot desks.

Hot desking is a system which involves multiple workers using a single physical work station or surface during different time periods.

“There has been an element of surprise as to how efficient and effective people have been working from home. That’s not to say that people will not go back to their offices. There will still be a very strong need for an office environment but that will evolve. There is going to be more emphasis on hot desks and utilising those spaces more efficiently with more people accessing them and perhaps putting in place more hub offices that are convenient for employees,” he said.

Corporates may become more generous in terms of the amount of space they allow per individual. “As they become efficient in how they use the space, they may also become less inefficient in how much space they give per person. I believe the two will cancel each other out,” said Shepherd.

What this means is that if the current average office space allocated per individual is around 55-60 sq ft, that may increase to 100 sq ft per person. Also, the overall need for space may come down as people are given more flexibility to work from home.

There is interest in healthier and safe working environments. Office landlords in China that provide timely health and effective safety measures for tenants are currently in a better position to gain the trust of their existing and potential occupiers. They are ensuring that their buildings are equipped with thermal imaging, air conditioning filtration and sterilisation systems; wellness and wellbeing levels are also being elevated.

Several commercial buildings in China are currently getting upgraded with heating, ventilation, and air conditioning (HVAC) systems in place to make them safer and healthier. “Post the lockdown, developers are upgrading commercial buildings in China with these facilities to ensure that these are safer and much sought after by tenants compared to those that do not have these facilities. India too may see a similar trend going forward,” he said.

Several projects in China have been delayed on account of COVID-19. “In the first quarter of 2020, as many as 50 percent of office projects in Shanghai were delayed and I would anticipate that even in Indian markets, we will see substantial delays in project completions as a result of the lockdown,” Shepherd said.

The residential sector is expected to gain priority over others due to cashflow issues and these trends may see a reflection in the Indian market as well.

“India may see a similar trend. As activity returns we anticipate the residential sector would again take priority and given that many office and retail projects have now been put on ice it may take some time for these to be kickstarted once more,” he said.

Several developers are coming up with new concepts such as home offices where a room is set aside to be utilised as an office in an apartment during a lockdown-like situation. “We may see more developers chasing cashflows and therefore we expect demand to come back first into residential,” he said.

Most retailers in China have received rent relief and tax breaks through the peak of the clampdown. More than 95 percent of the retail sector shops are now open.

“There have been incentives by the government to participate more actively, some cities are encouraging a reduced working week to boost spending and this has seen some revenge buying on part of shoppers, restaurant vouchers are being distributed among city dwellers to drive local consumption but consumer sentiment is likely to remain off historic peaks and this may be a cause of concern,” Shepherd said.

Hermes’ flagship store in China that reopened recently had sales of $2.7 million in one day. Revenge spending is the concept where post isolation and lockdown, people are going on a shopping spree.

The logistics sector, particularly cold chain logistics, has seen a massive boost as lockdown has seen a rise in online retail sales.

As for the co-working segment, firms with long term lease contracts have performed better than those that had signed up on short term leases. “Those are under immense pressure,” said Shepherd.

(Source: Moneycontrol)