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New leasing of retail spaces may take hit in short-term due to lockdown

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India”s commercial real estate, which has been performing well for last few years despite slowdown in the property market, is likely to be impacted due to nationwide lockdown as market experts see short-term affect on demand-supply of office and retail spaces, besides pressure on rentals values.
According to a PTI report: Corporates and retailers, both global and domestic, are expected to delay their decisions on fresh leasing of commercial spaces by at least a quarter.
The commercial real estate market is already witnessing re-negotiations of existing rentals and rent waivers from landlords as businesses have been affected due to the ongoing nationwide lockdown to check spread of coronavirus disease, according to property consultants and developers.
“The impact of COVID-19 in India is likely to be short-lived providing the virus remains relatively contained,” Anshuman Magazine, Chairman & CEO – India, South East Asia, Middle East & Africa, CBRE was quoted by PTI as saying.
“Office leasing demand as of now has been unaffected due to a sustained appetite amongst US and EU based corporates for India as an outsourcing destination. The evolving global situation could only potentially result into delayed decision-making in the short term,” he told PTI.
Office space leasing was at an all time high during 2019 at around 50-60 million sq ft in seven major cities.
JLL India MD (Retail Services) Shubhranshu Pani told PTI that leasing of retail space in shopping malls is at a standstill because of the lockdown.
“Retailers have already started communicating to mall developers about their inability to pay rentals,” he was quoted by PTI as saying.
Samantak Das, Executive Director and Head of Research, REIS, JLL India, told PTI, “In the current lockdown scenario, occupiers have suspended decision making on lease acquisitions. However, it is temporary in nature.”
Das, however, said the market fundamentals continue to remain strong – low vacancy and low supply – and therefore a drop in demand for a short-term is sustainable.
“Few large occupiers have begun re-negotiating their lease contracts for lower rents,” he was further quoted by PTI as saying.
Cushman and Wakefield India Country Head and MD Anshul Jain expects office leasing to pick up in second half of the year on the back of stimulus from governments globally.
“The COVID-19 pandemic has exacerbated office market cycles, with most key markets becoming more occupier-friendly. As seen in all major territories, governments and central banks around the region have been responding to the situation with policy measures and financial aid to mitigate the economic impact.
“Assuming this scenario holds, and the global economy experiences a stimulus-fuelled rebound and business activity gradually resumes, we can expect office leasing activity to pick up in H2,” Jain told PTI.
Anarock Head – Research Prashant Thakur told PTI, “Commercial and retail leases are under considerable pressure and we are likely to see a lot of re-strategizing on the ground. This pressure will persist over the short-to-mid term, until commercial and retail activity regain normalcy”.
Arpit Mehrotra, MD, Office Services (South India) at Colliers International, told PTI: “We believe that leasing principles do not fluctuate customarily, however, at some point it will exhibit the sum of the accumulated market trends as a new benchmark price which in current scenario looks on the downward side.”
The impact of the pandemic will slow down the decision making in both US/European and Indian corporates which could retrench capital expenditures, he added.
“For retailers, renegotiations of rentals is definitely on the cards as we foresee retailers seeking a deferment of rents from landlords during this close down period,” Mehrotra was quoted by PTI as saying.
Abhishek Bansal, ED, Pacific Group, told PTI: “Malls offer safe and hygienic ambience and hence, the pandemic may end up boosting it at the end of the crisis, but there will be some temporary pain for the time being.”
Bhutani Infra CEO Ashish Bhutani said there would not be much impact on Grade-A office space.
Bhumika group MD Uddhav Poddar said the market dynamic is unlikely to undergo a massive change in tier II & III cities that require organised retail and office assets.

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