Omicron threat may hamper commercial market recovery in 2022

Following the trend in the residential segment, in 2021 the commercial real estate market was coming back to life, albeit slowly. The emergence of the new COVID variant and a potential third wave in the country, however, is now looming large over its recovery.

After facing severe disruptions in 2020, the commercial property market managed to withstand the impact of the second COVID and the lockdowns in 2021. Data on office leasing, warehousing and data centre segments suggests, the markets grew by healthy double digits over 2020. The office leasing market in top six cities grew by 15.5 per cent year-on-year, led by sectors like information technology (IT), banking, financial services & insurance (BFSI) and co-working space. While, new supplies surged eight per cent as markets in Bengaluru, Pune and Delhi-NCR added capacities, data from Savills India research shows.

As per early estimates by global real estate services firm JLL, growing business activities, especially in the digital services space that has got a major boost from the pandemic, is set to attract US$5 billion worth of institutional investments in 2022 - taking it at par with pre-pandemic era.

"The Indian economy is expected to gain strength and broad-based investment growth on the back of low-interest environment, continued monetary stimulus, improving revenue visibility across asset classes, and inclusive growth policy. Listing of REITs, distressed opportunities, asset diversification, high growth data center, and logistics segments will drive the investment momentum in 2022," said Radha Dhir, CEO & Country Head for India at JLL.

It now estimates that India's office real estate markets are expected to grow by 30-35 per cent in 2022 on the back of growing traction for the tech industry due to increasing spend on technology and digital transformation from global corporates. India's increasing role in the innovation and R&D sphere will also drive more global capability centres to set up operations while the existing ones to continue to expand. Demand from other sectors such as BFSI and consulting is likely to show some improvement even as other sectors such as e-commerce, manufacturing, and healthcare gain more strength, JLL noted.

According to Uddhav Poddar, managing director at commercial developer Bhumika Group, in 2021 the retail sector regained some of the lost ground after being hit severely by the pandemic. "Apart from retail, other real estate segments also witnessed healthy sales; the number of new launches also increased to meet increased demand", he said.

However, with the new COVID variant - Omicron - now spreading rapidly and restrictions of on public movement being re-enforced,  turning industry stakeholders jittery. According to them, if lockdown measures are introduced again, like the last two years, then segments like office leasing - especially in the conventional sectors like consumer goods & services, transport & logistics and engineering & manufacturing will take further hit. The three broad sectors have already cut their office space requirements significantly in 2021 - bringing their cumulative share in the office space market to 9.5 per cent from 18.1 per cent in 2020.

If the trends during the past two COVID waves and the following lockdowns are something to go by, another COVID wave, backed by the Omicron variant could prove to be a major dampener for a section of the  commercial real estate market in 2022. As per estimates by professional services and investment management firm Colliers, COVID wave impacted immensely potential segments like co-living, for instance. Between December 2020 and March 2021, the occupancy in most co-living facilities crossed the 45-50 per cent mark as the market improved. However, the second wave severely impacted the market from April 2021 onwards.

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