Commercial Real Estate Preparing for the Post-Pandemic World

The effect of COVID-19 has impacted every aspect of businesses, putting companies to survive the aftermath of the pandemic. In the commercial real estate sector, the impact is evident as developers are being affected in several ways, largely due to a halt of on-site visits, documentation, negotiations, and closure of deals. In the pre-pandemic world, the sector was flourishing, with leasing activity and available resources in terms of both human and capital. But in the wake of coronavirus, developers are seeking quick recovery and opportunities to bounce back. 

In a Knight Frank India survey, along with FICCI and NAREDECO, the coronavirus outbreak and its impact on the economy have pushed the sentiment of the real estate market to its all-time lowest level in the first three months of 2020. It is expected that both residential and commercial real estate sectors to be impacted in terms of launches, sales and prices. The magnitude of the pandemic has sparked many concerns on whether it can bounce back in the post-pandemic scenario. Already, the government is taking proactive measures to prevent the spread of the epidemic by imposing a nationwide lockdown and social distancing.

Moreover, real estate companies are also facing challenges of mitigating health risks for their employees and customers. Many developers cannot get permits as the cities imposed lockdowns, thus they are facing construction delays and potential reduction in return. These challenges are stern as many asset owners and operators are dealing with drastically reduced operating income. The challenges of project delays will not just rely on lockdown. It will also take time for developers to resume construction work in full swing, even after the lockdown gets lifted, as most of the labourers have left for their home towns.

According to ANAROCK research, as many as 156.2 million housing units are currently under construction across the top seven cities in India, of which around 46.6 million units were to be delivered in 2020.

Considering a McKinsey report, the unlevered enterprise value of real estate assets, as of April 3, had plunged 25 percent or more in most sectors and as much as 37 percent for lodging. However, amid the crisis, several companies are working hard to fight against the pandemic concerning staff, tenants, and end users, while also facing tough business trade-offs. 

Undeniably, the recovery of the industry from the effects of COVID-19 may take a year of time. While commercial real estate service providers have been diversifying sources of revenue, pursuing digital strategies, and focusing on tenant experience over the years, the pandemic has stimulated these strategic changes, forcing businesses to made investments in such areas.

Most reports claim that the post-pandemic era will bring a fresh start to the real estate sector with greater intensity and dynamism. The pandemic could also change previous experiences and habits that may affect demand for other real estates assets, such as hospitality properties and short-term leases.