Across the world the commercial real estate, most notably the retail and office spaces, have been hit the most due to Covid-induced new normal. It is hence being debated as to whether commercial real estate would be able to reinvent itself to remain relevant in the post-Covid world where the Work From Home and online shopping threatens to eat up the market share of till-recently lucrative business models of retail and office space. Track2Realty explores the need for innovation.
Facts speak for themselves: As per a Track2Realty consumer survey, 56% employers are finding Work From Home to be a long-term reality. In retail spaces, the vast majority of Indians, as many as 84%, are pretty comfortable with the reality of online shopping. Doesn’t it suggest scarecrows and gargoyles all around for the commercial real estate? Of course it does! But then this is just one side of the grim reality that the retail and office spaces are up against.
The Study also noted, on the other side of the reality, that the Work From Home is affecting the mental health of the workforce and no less than 68% Indians are craving to return back to the office set up for better productivity and work & life balance. Similarly, the malls that were more than the shopping centres are being missed by a large share of the Indians. As many as 84% respondents said that they would love to go back to the malls for leisure & entertainment.
This calls for a reality check! How can the commercial real estate developers and operators pull back the eager-but-hesitant Indians amidst post Covid blues? If Work From Home continues to be a reality and the Indians are comfortable shopping online then why should office spaces and malls even exist? If the commercial spaces exist then there is a running cost to it. Most of the developers in this segment have the dual challenge of serving the debt interest as well as the occupiers’ increasing exit.
Time to experiment hybrid model of retail & office
Commercial spaces need innovation to attract the footfall
Mall coffee shops as office meeting point & office spaces with leisure activities were used even before the Covid
Convenience stores & bank ATMs are already common at both retail & office
Malls converting into part office and office spaces turning into retail & leisure destination could attract footfall
A hybrid model could differentiate between quality retail & office spaces and the rest in market
Can there be an innovation that the market adopts seamlessly? Industry stakeholders too are thinking on the same lines but have no concrete plan of action as of now. Vipul Shah, Managing Director, Parinee Group believes that after more than a year of adapting to Work From Home, organizations may require to take into consideration full-office makeovers to get employees back to their desks. The new-age commercial spaces need to focus on collaboration and must elevate the principles of dynamic, purposeful and people first workspaces that are focussed on a collaborative work culture.
“Adopting to futuristic and more agile ways of functioning accompanied by technological innovation has become a pre-requisite for accomplishing a more transparent and rewarding work culture. In such a scenario, going phygital i.e., a combination of physical and digital offerings will help fix the gap caused due to physical and remote workspaces. These technically advanced two-way set-ups through their adaptable nature and capability to reconstruct community among detached employees will be the key for sustained growth,” believes Shah.
Aditya Kushwaha, CEO & Director at Axis Ecorp points out that historically external shocks such as an epidemic and even economic downturns did not have a long-term impact on commercial real estate. It was mostly immediate and never as widespread. Things are different in this post-COVID-19 period as there is still a great deal of uncertainty. The Work From Home trend has resulted in weakened demand for large office spaces, and even the rental market has taken a hit.
“Companies have put plans for space expansion on hold. Even with rent/lease agreements, corporates’ desire far greater flexibility in terms and prefer spaces that require minimal capital investment. The malls are also looking at cutting down the time people spend inside. Before the pandemic struck, the objective of shopping malls was to make sure that consumers spend maximum time inside the store. The new approach will be to make sure that people are able to find what they need easily. There will also be steps introduced to cut down on the touchpoints for the consumers. It is also a possibility that the outdoor retail spaces, such as walk-in malls, may see an uptick in the future,” says Kushwaha.
Vinit Dungarwal, Director, AMs Project Consultants is more candid to admit that Covid-19 has fundamentally changed things in the commercial real estate space. The office space absorption across six major cities for 2020 stood at 27.4 million sq. ft., which was a 51% drop y-o-y (from 55.7 million sq. ft.). There is a need to conduct a feasibility study and assess how companies in this sector can achieve the perfect balance between capital preservation and strengthening their competitive differentiation.
“At this juncture, it is difficult to predict when the commercial real estate segment will bounce to pre-COVID levels. However, as the impact of the second wave is wearing off and things are opening up, it is presumed that retail space may get on track in times to come. Changing the business model is not advisable as it may take a lot of time to fine-tune it and may also result in halting the progress the space has now started to make,” says Dungarwal.
Industry reactions are by and large guarded with hesitancy but the fact of the matter is that post Covid the office & retail spaces have no choice but to adapt itself to the new normal and change for the future. Since the demand would be subdued for the next few years, a section of the analysts are also evaluating whether the hybrid model where malls convert a part of it (or floors) into office spaces and office spaces turning a part into high street with more shopping and leisure activities could change the occupiers’ outlook?
A hybrid model might be on a pre-drawing board stage at the moment but sounds logical for a segment of real estate that has to reinvent itself to remain relevant in a future-uncertain market. After all, the combination of leisure & work at the same destination would attract more Indians than a plain vanilla workplace or the shopping mall.
Ravi Sinha
@Ravitrack2media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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