We are in an unprecedented time and guessing the period of uncertainty is not easy. The speed with which a vaccine is created would ultimately dictate the extent of change and the new normal. A period of disruption while the situation prevails will be immense, but humankind also has the resilience of bouncing back very quickly. In the immediate aftermath of New York Twin Towers collapse, people believed that it spelt the death knell for the airline industry as people would be too scared to fly, yet 18 months later, the airline industry was on record highs on the back of very strong travel numbers.
The short term impacts of Covid 19 include:
- Disruption in the retail and office markets (issues on receipt of rentals/delayed rentals/partial rentals, negotiations on the same)
- Migration of a good number of the labour force, involved in the construction industry, back to their native places
- A perceived negative sentiment on the residential segment, given the pessimism on jobs, cash flows and outlook
- Perk up in interest on warehousing and logistics as e-commerce/cold storage gets a further boost
- Hit in the hospitality industry
In the medium-to-long term, the experts envisage the following:
- The office segment should come back given the fact that the demand drivers that caused such a robust sector in the first place have not gone away – cost arbitrage, availability of manpower, constantly upgrading technology. A long Covid 19 situation could, in fact, lead to reduced supply with developers unwilling to take on new projects/shrinkage in the number of developers itself.
- Residential should come back on the back of the lowest interest rates we will be seeing in a decade and on the back of lower capital values. Also, the turbulence of financial markets and volatility of instruments like equity and debt would again make the relative stability of residential real estate a sensible investment. There will be good demand for ready-to-move-in apartments
- There are roughly 50 million workers engaged in the construction industry. Migration of workers is an annual phenomenon around festivals. While Covid 19 is a more pressing and unforeseen situation, it is very unlikely that a good majority of workers would choose not to come back to an industry, which gives them decent employment and wages.
We will see better efficiency in all aspects of the business – efficiency in construction (lean), in operations and maintenance, in the way space is utilized. Technology would bring about innovation and better efficiency, lead to better hygiene and safety. Financial closure will be the key for residential sector. We will see increasing instances and a trend towards 'Build and then sell'. This would necessitate having the financial closure in place. Cost of capital in the real estate industry has to reduce sharply, be it home loan rates or construction finance rates.