Residential real estate has witnessed good demand over the last 6 to 12 months, and I foresee good times in the next 2 to 3 years not only for residential but also for commercial and retail spaces, says Uddhav Poddar, MD, Bhumika Group.
In an exclusive interview with Sanjeev Sinha, Mr Poddar talks about the present and the future of commercial real estate in times of the pandemic.
After two years of the pandemic, the real estate sector is picking up again. How long do you think the good times will last?
According to me, real estate has faced lots of challenges and churn in the last two-three years, and it was not just owing to COVID. RERA, demonetisation and GST have also left an impact on it. However, I feel that because of these challenges and churn, all non-serious players have left the sector, which is a good sign. As regards the good times, I think we have seen good demand over the last 6 to 12 months, and I foresee good times in the next 2 to 3 years, not only for residential but also for commercial and retail.
Gross absorption in office space across India’s six major cities stood at 36.9 mn sq ft, recording a 15.5% increase in 2021. Meanwhile, as per data released by Savills India, new supply rose by 28% (36.8 mn sq ft) when compared to 2020. In light of this, how do you foresee the future of the commercial segment?
As regards absorption in office and commercial space, I think they are back in full swing. As you know, we are more focused on the retail segment. We see a good demand from retailers because they have done amazing retail sales numbers in the last six to twelve months. All large retailers are on an expansion spree looking for good A-grade retail space. Similarly, if you ask me about offices, I am seeing good demand in the office space segment as well. The challenge is the availability of good A-grade offices. So, if the development is A-grade, I don’t think absorption will be a challenge.
How can real estate developers, especially those in the commercial sector, reinvent to remain relevant, post-COVID-19, especially with the shift towards work from home (WFH)?
If you ask me, personally I don’t think that work from home is a permanent solution. I am of the view that a very limited number of people will be working from home in the near future. What I see is that lots of people want to return to their offices as they are sick of working from home. They want to be back in their workspace, they want to enjoy the journey to their offices and interact with their colleagues. Most organizations have already started moving back to offices – at the most they will have 10% to 15% of their workforce working from home. And with business and economy growing, I don’t see consumption of office space to be a challenge.
How will the rise in fuel prices and consequent increase in construction costs along with inflationary pressures and interest rates impact the buyer sentiment now?
Higher fuel prices and construction costs are a double whammy for our sector. On the one hand, the disposable income of buyers is getting decreased and on the other, the construction cost for all developers is increasing due to which we are forced to increase prices. This definitely will affect the demand. It’s not a very good situation to be in and we hope that prices are back to normal as early as possible.
A few analysts are predicting that the future of commercial development lies in the hybrid model in which the retail space co-exists with office spaces. What are your views on this?
Yes, hybrid and co-working spaces are here for the long run. COVID has also taught us to provide some flexibility to our employees. As a result, offices are providing their workforce with the option to work from home or from co-working spaces, which their company has tied up with.
Co-working spaces are gaining traction because of that. And it’s a good module which I think is here for the long run.
What kind of growth commercial real estate market is likely to see in 2022-23 and in this segment, which of the two — retail and office — according to you is going to have a greater share of the pie?
Well, commercial and retail are different pieces of the real estate pie. While they both are part of the commercial space, they don’t compete with each other. We are more focussed on retail. We also believe that a huge demand is expected in retail space because all retailers are now expanding and there is a substantial shortage of space. We foresee a boom in the retail space as it doesn’t have a supply overhang.
How do you see the future of real estate in general and commercial segment in particular in a state like Rajasthan where you have a significant presence?
In Rajasthan, we see a substantial opportunity in the commercial retail space because it lacks A-grade developers and A-grade buildings for retail and office spaces. Retailers and large corporates want to operate in Rajasthan but they are experiencing a significant shortage of quality infrastructure, which provides a substantial opportunity for developers like us.