India’s Covid situation seems to be easing out in June as many states brace themselves to unlock. The vaccination drive is playing an important role in opening up the states. The real estate sector had shown great signs of recovery after the first wave of Covid-19 last year. With the 2nd wave slowing down its pace, all eyes are now set on the real estate sector’s recovery.
The year 2020 was memorable for a variety of reasons. In a matter of days, the world faced its first pandemic in a century, the global economy came to a halt, and millions of people lost their homes and livelihoods. Aside from technology and healthcare, there was one sector that continued to astound analysts, and that was the housing market. In 2020, the Indian housing market saw a massive increase in interest from retail investors, including people buying their first homes as well as those upgrading to a larger home in search of extra space to use as home offices. However, the year was extremely difficult for co-working and commercial space owners, as people shifted to remote working and online shopping for the majority of the year.
To be specific about the real estate sector, the commercial real estate space witnessed a major setback as most offices shut their operations amidst Covid forcing employees to work from home. Thus, instead of wasting their topline in paying lease, many companies chose to vacate their leased office spaces. This impacted the commercial real estate investors majorly, especially in metros. However, will the tide turn the fate of commercial real estate space in the coming year? Surely a big YES. The impact of vaccination is going to turn the tide of Commercial Real Estate for good. The 5 major factors affecting commercial real estate can be controlled with the increased pace of Covid Vaccination.
5 Factors That Affected Commercial Real Estate in 2021
- No Full-fledged Operations
With the second wave making its foray and imposed lockdowns adding to it, the commercial real estate space witnessed a muted revenue. The rise of vacant spaces due to offices halting in-office operations to do away with lease looks to be a growing concern for investors.
- Less Current Demand
From office spaces to business units, commercial real estate is facing a demand lull as Covid constraints remain due to the possibility of a third wave affecting in July. Thus, the vacated inventory is also subject to no takers in the current scenario.
- Deferred Cash flows
Since the offices are mostly vacated, the lease cash flows have halted till a deferred period. This deferral can be expected to continue till late 2021. Thus, it has majorly affected the revenue of commercial real estate investors.
- Retail Leasing Spaces
Apart from office spaces and central business districts, shopping malls and utility shop spaces have also taken a major hit since the start of the pandemic. Such high-traffic places are feared to increase transmission and thus are kept shut by civic authorities. This has caused their revenue to fall by more than 50% as even high-quality brands operating in such malls are getting affected due to high costs but no revenue. Moreover, e-commerce competition has given retail leasing a negative outlook in 2021.
- Fear of the Third wave
The fear of the third wave looms over states as new variants seem to be taking on in different parts of the world. The states are bracing themselves to fight against it. But with that, other sectors will be put on the back seat including their effect on commercial real estate.
With such factors hovering over the commercial real estate segment, investors are now in the wait-and-watch mode. Their eyes are set on the recovery of the sector.
Vaccination drive –A Ray of Sunlight for the Commercial Real Estate?
To restrict the virus is the only solution for getting back to pre-Covid levels. A large contribution in containing the Covid-19 comes from the vaccination of the citizens. Currently, the pace of the vaccination has increased with the majority of citizens above 45 years being in the fully vaccinated category. Along with that, the opening up of vaccination for 18 to 45-year-olds will be a good boost for the working class of the country.
This increased pace of the vaccination will largely drive the demand for Commercial Real Estate. As more and more working-class people will get vaccinated, the shift may likely be visible from work from home to work from office set-up as people are struggling with their work-life balance at home. Thus, people could also be seen resuming leisure activities like shopping, dining, movies, and much more. This opening would lead to increased demand in the commercial real estate sector as the outburst of people contained in their homes for 1.5 years will be enormous. Thus, the late 2021 and the year 2022 will be of prime importance for commercial real estate revival and investors can buy cheaper in 2021 to cash in on the demand in 2022.
Real estate companies went above and beyond to entice buyers. From video walkthroughs and virtual reality videos to virtual site visits and inventory selection, the real estate industry saw new levels of technological innovation, even among buyers who were not tech-savvy.
To put it in short, Commercial Real Estate needs a revival. It is largely dependent on the speed of vaccination in our country and the falling number of cases. The Commercial Real Estate sector may witness a K-shaped recovery in 2022. Till then, the sector would remain a little muted in terms of revenue realizations and new demands. The current vacant inventory can be held to leverage on further demand in the market in late 2021.
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Commercial Real Estate in Covid - Will Vaccination Revive the sector FAQ's:
The 2nd wave of Covid-19 has largely hit the sales of India’s real estate with muted existing demand amongst the buyers. The leasing industry has also been groped in the shackles with unfavourable cash flows and their deferral.
The Government of India had announced a boost to India’s real estate with Tax deductions on affordable housing and Stamp Duty cuts in certain states like Maharashtra and Karnataka is aimed at reviving the sector.
Commercial Development has seemingly been impacted by 5 important factors discussed above like No full-fledged office operations, Less Current Demands, Deferred Cash Flows, Retail Leasing Spaces, and Fear of possible third wave.