Office Space Demand Might Take A 35% Hit In The Short Run, Says L&T Realty

Demand for commercial office space is expected to take a hit in the short term as the restrictions imposed to tackle the Covid-19 pandemic crippled companies worldwide.

Challenges in the U.S. and an increase in work from home culture will lead to muted demand for office spaces, said Shrikant Joshi, managing director and chief executive officer at L&T Realty Ltd. “Demand may be hit by 30-35 percent for the office space in the short run,” he told BloombergQuint in an interview.

“45 percent of office leasing is done by U.S. companies. Each firm is grappling with its own challenges and demand for leasing will come down. Thirty percent of the Indian corporates that used to take the space are forced to work from home due to Covid-19, and this culture might continue even after the situation settles,” Joshi said. “Percentage of people who will work from home will be high and demand may remain muted to that extent.”

The U.S. has now emerged as the new epicentre for Covid-19 after cases of infection in New York crossed the tally reported in China’s Hubei province, where the novel coronavirus originated in December 2019. The world’s largest economy, according to Goldman Sachs, will shrink an annualised 34 percent in the second quarter compared with an earlier estimate of 24 percent as the pandemic hurt businesses.

In India, the outbreak hurt the real estate sector, which was already battered by muted sales and piling up of inventory. Domestic developers have been struggling to raise funds as non-bank lenders turned selective after shock defaults by the IL&FS Group in September 2018 triggered a liquidity crisis. That, coupled with an economic slowdown, stalled a nascent recovery in the sector from the disruption caused by Prime Minister Narendra Modi’s cash ban and a stricter housing law.

“Credibility, brand and governance structure will be important to get funds,” Joshi said. “The flows will be reduced than they were in the past and there will be challenges.”

Joshi, however, said L&T Realty was well placed among peers. “We are financially strong. Our brand is well trusted, we have a construction company in-house, there is no company like this in the space,” he said.

Relief Package

While the government has come up with various relief measures to curb the impact on industries, no specific package has been rolled out for one of the large employment generators, Joshi said.

“We are also in talks with urban and housing minister and central ministers, who have sympathy for the sector and understand the point that a package needs to be created for the sector for the role it plays in job creation.”

Also Read: Three Ways To Assess Covid-19’s Impact On India’s Real Estate Sector

WATCH | L&T Realty's Shrikant Joshi On Coronavirus’ Impact On Real Estate