The Pace of Vaccination Versus Revival of the Commercial Real Estate

India on September 13, 2021, crossed another milestone in its vaccination drive as it administered 75 crore Covid doses. The achievement is significant, especially considering that the country took 85 days to administer the first 10 crores of vaccines.

The news augurs well for the commercial real estate office market considering that the sector had been reeling under financial strain raising the concern of stakeholders and investors alike. The primary factor has been the second wave of the pandemic along with intermediate lockdown and the slow pace of vaccination.

The Indian commercial real estate office market has witnessed a 32% year-on-year decline in H1CY21 (Jan-Jun 2021) with net absorption at 7.2 million sq ft, according to a report by ICICI Securities Ltd released in July 2021. The commercial space sector has been facing issues considering that no full-fledged operations have resumed in offices, leading to subdued current demand, besides resulting in deferred cash flows. To add to this, retail leasing spaces have also taken a hit due to the pandemic.

Earlier, it is pertinent to note that once the unlocking process was initiated in the third quarter of 2020, the office markets did start to show green shoots of revival, as per a report by international property consultant JLL India. As business activities resumed with corporate India returning to office in a staggered manner in the third quarter of 2020, the office market looked somewhat upbeat once again. Sentiments witnessed an uptick in the last quarter of 2020 as the news of potential vaccine development came out, and the office market continued on a recovery momentum. During this phase, net absorption shot up by 52%, while new completions surged by 39% when compared with the preceding quarter.

Now, with the fear of the impending third wave hovering over the commercial real estate segment, investors have gone into the wait-and-watch mode. There is an eagerness to witness a full-fledged revival in the sector.

In this regard, increased pace of the vaccination holds the key. As more and more working-class individuals will get vaccinated, the shift may likely be visible from work from home (WFH) to work from office set-up or a hybrid working model.

It is largely anticipated that the commercial real estate office market is likely to witness a K-shaped recovery in 2022. So, while the office space sector continues to remain a bit muted in terms of revenue realisations and new demands, hope continues to hinge completely on the pace of vaccination drive.