With the COVID-19 situation still at large, speculations are still on about what the future of work is going to be, but with the trend that has been observed in the office leasing activity in India in 2021, it is expected that 2022 will have the same strong streak continuing further. The growing sentiment indicates that hybrid work will be the dominant sentiment in the long-term decision making by occupiers. Better built spaces keeping the learning of the pandemic in mind might push tenants towards more quality assets, thereby driving rental growth. Let us explore how projections of 2021 matched up with the situation on the ground before understanding why 2022 projections still favor the office market in terms of commercial real estate investments. While retail, warehouses, and industrial spaces are great assets to invest in, there’s a slight edge in investment growth when it comes to office space, generally speaking.
Office Market Projections of 2021 versus Reality
Even when the pandemic was wreaking havoc across the world, commercial real estate was one of the few investment assets that retained their stability. Among warehousing and industrial, office space leasing also picked up considerably by the end of the second wave. Let’s see what the market projections were and how they measured up to what actually happened.
Physical Offices Retained their Positions
It was expected that occupants would opt for a mix of traditional offices, and flexible spaces, along with a remote/hybrid work culture that would fit their operations. Sure enough, a majority of the workforce made it back to the office, while hybrid options were offered at select places to a certain portion of the staff population.
Growth in Office Leasing
It was expected that 2021 will see an uptick in office leasing while retaining flexibility in lease terms and tenures. True to that, flexibility was demanded in lease terms and structures.
Workplace Strategies Reimagined
The projections involved that spaces might be repositioned, amenities and services improved to meet changing employee needs and tech tools would be used to design and market commercial properties. More collaborative and activity-based spaces were seen coming up in the market.
The ‘Hybrid’ Workforce
It was projected that flexible spaces will play a major role in creation of a hybrid workforce that aids in business continuity. Many companies, like Meesho, adopted a hub and spoke model to allow flexible offices to be present in locations where their employees were more in number. Likewise, managed offices and enterprise coworking will also remain attractive options.
ESG to gain prominence
CRE strategies will be led by environmental, social, and governance aspects with employee productivity at its core. The same has been observed in multiple new and renewed leases across the nation.
Now that we have seen how the forecast holds up when compared to reality, it is safe to presume that most of the market sentiment is well aligned to predictions and the growth of the office sector is going to continue unhindered in the long term, albeit with many changes. In a survey by CBRE, 80% of senior business leaders wanted to bring employees back to office, but they were also willing to offer a greater degree of flexibility and choice.
In the same survey, it was also asked of the participants about the changes that they expect in workplace settings over the next couple of years and the following were the responses.
Continuing on from what the market currently is, the following is the outlook for the office market segment in the foreseeable future.
ESG’s role will keep on increasing
Over the past decade, from 2011 to 2021, green real estate assets have grown significantly, making their share in the office stock go from 24% to 31%. Delhi-NCR and Bengaluru are in the forefront with close to 54% of total certified office stock of India.
Tech-enabled spaces will be pivotal for retaining talent
As seen from the survey results above, it is obvious that spaces will bank heavily on tech-enabled spaces, to add contactless logins, space tracking, and utilization of space, along with measures of attendance management, seat booking, meeting scheduling that have become more important since the COVID-19 situation.
The 5G+ Workplace
By the year 2030, the Gen Z (those born between 1997 and 2012) will be occupying almost a third of the workplace globally. This brings a scenario never before seen in history, where four generations will be present in the office. This will bring in great changes in the workforce dynamics and will also require measures taken in the workplace as well.
Proptech to pioneer CRE transformation by 2030
As per a research by CBRE, six technologies will be playing a major role in the transformation of the relationship between developers, investors, tenants, and employees. They are SaaS, IoT, AR/VR, AI, Blockchain, and RPA. In the lifecycle of an office building in India, the first three are already being utilized in areas like construction, property management, portfolio management, facility management, and workplace strategies. The use of AI, Blockchain, and RPA is going to see a significant increase in portfolio optimization, property management and construction.
What is in it for the CRE Investor?
The office real estate market is stable and going strong. Even if hybrid working setups proliferate, the need for Grade A office spaces is not going to decline. With a good market demand and supply ration, an investor can reap the benefits of long term investing via office real estate, aided by capital appreciation. Thinking about where to get started? What better way than to begin with fractional ownership through Strata?
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