Commercial real estate segment expected to perform well post COVID-19
The economic impact of the nation-wide lockdown due to the increasing threat of covid-19 has been quite severe. The urban activities have been halted to a great extent, leading to a demand, supply and market shock. As per the reports, Indian GDP took an immense hit as its three major contributors, private consumption, investments, and external trade were affected. All the other sectors have faced problems and the real estate sector is no exception. The construction work was stopped early in the piece, while the sales also diminished with time.
A rise in the number of fence-sitters and delay in decisions on large investments like real estate has been speculated, which may further escalate the agony. While retail and offices might take a little more time to be ‘Business as usual’, realtors are gearing up for the ‘new normal’ once the lockdown is over. The post covid-19 scenario will give a fresh start to the realty sector with a renewed vigour, according to a Savills report. Once the lockdown is lifted, the commercial realty is expected to bounce back.
The commercial real estate sector has been, by and large,
resilient to slowdown over the last few years. It has also been the preferred
investment choice as it is insulated from market volatility in the long run. As
opposed to the rental yield of 1.5 per cent – 3.5 per cent from a residential
property, a commercial property gives the average rental yield of 6 per cent to
10 per cent. The same holds for capital appreciation in the current market
In the year 2019, the Indian retail witnessed a total PE inflow of $970 million with the commercial real estate attracting the maximum private equity investments to the tune of $3 billion in the first three quarters alone. With a robust growth as compared to other major economies despite the COVID-19 outbreak, A Colliers International report foresees continuity in private equity investment in Indian real estate over the long term. These statistics indicate the immense potential of commercial realty. The prices will move towards an upward trajectory owing to a huge pent-up demand in the sector, with a robust growth as compared to other major economies despite the Covid-19 outbreak.
In a bid to propel the Indian economy, the government has announced quite a few initiatives. The extension of deadline for completion of real estate projects and the Reserve Bank of India’s decision to allow a moratorium on all loans and deferment in interest payment on these loans for three months will be a huge breather for the real estate sector. Another cut in the reverse repo rate by 40 bps from 3.75 per cent to 3.35 per cent will further inject liquidity into the economy.
The experts predict that the Covid-19 pandemic will redefine certain trends in the realty sector. They expect that hygiene and wellness will be a key factor in assessing properties in both commercial and residential segments, going forward. It will compel developers to revisit their operational activities in the commercial sector and services, while carrying out a comprehensive assessment of their hygiene and wellness measures. What will become increasingly dominant is the role of emerging technologies such as Virtual Reality, Artificial Intelligence, and 3D walkthroughs to disrupt the real estate segment in the longer run.
Bolstered by enabling policy reforms and demand pick-up, once the situation returns to normalcy, it will ensure that the commercial realty remains buoyant and continues to attract private equity investments.