Real Estate

Commercial real estate could see temporary delays in leasing due to Omicron: Savills India CEO Anurag Mathur

Abishek Law | | Updated on: Jan 11, 2022
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In an interview to BusinessLine, Mathur talks about the likely impact of Omicron on the real estate sector in 2022, outlook for the year and rising demand for alternate asset classes

Indian real estate, particularly, commercial real estate could see temporary delays in new lease signing because of Omicron-related disruptions; but long term prospects of the sector’s categories - home sales, office and commercial space leasing and alternate asset class developments - remain intact, says Anurag Mathur, CEO, Savills India.

In an interview to BusinessLine, Mathur talks about the likely impact of Omicron on the real estate sector in 2022, outlook for the year and rising demand for alternate asset classes. Edited excerpts:

Is Omicron an immediate threat to real estate sector’s recovery?

As of now, the effects are still minimal. But we need to see how soon the infection peak happens and when it troughs. Generally, anecdotal evidence suggests, the faster the peak, the quicker is the fall. Recoveries shoot-up soon after that.

In terms of residential sales, there is a strong demand in the market and it is expected to continue in 2022. Demand could be pushed back by a month or so due to restrictions on mobility, but facts like lower interest rates, on-time supply and delivery of residential units, and a strong interest from buyers, especially young ones, will continue to tilt scales in favor of higher off-takes.

Will commercial real estate follow a similar trend?

Despite work from home raising questions on demand for office spaces, 2021 performed better than 2020 in terms of leasing and absorption. The year 2022 also seems to be a strong year if the leasing pipeline is taken into consideration.

We have not seen any cancellation of leasing commitments, nor have renewals stopped so far. In 2020, there were significant increase in downsizing and cancellation of renewals. But none after the more disruptive second wave we saw last year. In fact, leasing picked up.

However, there could be some delay in signing of agreements and that too because number of infections are high. So there can be delays of a month-or-so; but probabilities of cancellations are extremely low.

I also think people have started factoring in these infection waves when they look at back-to-work policies. Take the instance of some of the developed countries in the West. Despite high infections, they are calling these endemic, have continued business as usual with minimum curbs and disruptions. We could also be looking at a similar situation going forward.

Has the commercial real estate back to pre-Covid levels?

Not yet. If 2019 levels are considered to be the parameter, then leasing and rental activity will reach those levels towards 2023 or 2024. The 2020 disruption on the sector was quite severe – worker migrations, financing issues, hospitalisations – which led to slowdown in project deliveries, lesser supplies and even cancellation in renewals and contracts.

And even with rising infections now, you do not foresee a hit on supply in Grade-A offices?

I think developers are factoring in these issues like rising infections, sporadic increase in cases and so on. One prime evidence, post the disruptions during the second wave in 2021, very few construction activities stopped or were derailed. Once some of the restrictions were lifted, it was business as usual. So even now, I think developers are aware and are taking precautionary measures to ensure project completion and deliveries.

What is the outlook on alternate asset classes like warehousing?

If I may say, 2021 has been the year of beds and sheds – residential and warehousing.

Indian warehousing is entering a period of boom driven by e-commerce, quick commerce, 3PL, pharma, among others. In fact, not just large cities like Delhi or Mumbai, smaller tier 2 and tier 3 towns are witnessing a boom in warehousing. This trend will be more prominent in coming days with there being enough headroom to grow. However, Delhi and Mumbai as regions will lead the segment for some time.

The other part is data centres. Earlier operators preferred centers near cable landing stations. So Chennai and Mumbai were obvious choices. Now trends are changing and people are willing to move inland. So places like Noida (Uttar Pradesh) are expected to see good growth. Plus there’s enough captive audiences to allow growth inland.

Will institutional investors continue to express confidence in Indian assets?

I do not see a reason as to why they won’t. The real estate sector is witnessing growth and long-term prospects look intact. Commercial space or office space will continue to see high interest as Grade-A supplies improve; warehousing and data centres are the next most popular asset class followed by residential. Blackstone is one such major global investor that has interests (warehousing) in India now.

With listed developers (in residential) gaining prominence, we are expecting good private equity inflow there in 2022; may be 10 – 15 per cent of PE inflows will be into residential projects. However, commercial real estate and industrial and logistics sector will continue to be drivers of institutional investments.

Published on January 11, 2022

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