Unlike in the west, work from home, or WFH as is common parlance now, was nearly unheard of in India a year back. Human re - sources consultants attributed it to a culture where employees were expected to mark attendance and then monitored through the workday, much like school. This supervision was necessary since it was widely considered that people worked because they have to, not because they want to. That mindset underwent a radical change in March last year when the Covid-19 pandemic-enforced lockdown forced companies to adopt the alternative overnight: get employees to work from their homes to ensure business continuity. “The strangest of work can now be done virtually,” says Priya Chetty-Rajagopal, managing partner, Multiversal Advisory, an executive search firm based in Bengaluru.
In the western world, about 8% of the workforce operated from home even before the pandemic, according to Manoj Menda, corporate chairman, RMZ Corp, one of India’s largest office space developers. That number is expected to hit double digits as the effectiveness of WFH as a concept gains validation. But in India, that number is probably be - tween 5% and 7% even post-Covid-19 “because we have other social issues to deal with”, says Menda.
Several surveys have listed the physical and cultural challenges of WFH in India, not least because a large proportion of its office-going population stays in joint families, while the younger migrant workforce stay as paying guests or in hostels. Either way, the Indian “home” isn’t ideal for a WFH setup. “The space is not enough; the communication infrastructure is not good enough,” says Anshuman Magazine, chairman and CEO-India, South East Asia, Middle East & Africa, CBRE, a real estate consultancy firm. On top of that people have to juggle between household chores and work commitments, while parents have to also manage children. As the work-life line blurred, mental health issues surfaced. “WFH is taking a toll on people’s lives,” says Juggy Marwaha, CEO, Prestige Office Ventures, part of the Bengaluru-based developer Prestige Estates Projects.
In a nutshell, the office cannot remain shut for long. Perhaps the biggest indicator is that, since July last year, large developers have been able to collect about 95% of rental income from their leased office spaces. This despite tech parks—IT/ITeS firms occupy 40%-45% of office spaces in India—reporting 25% workforce occupancy. “Tech-giants like IBM, Oracle, and TCS have preferred to renew their leases,” says Anuj Puri, chairman, Anarock Property Consultants. Companies are also conscious of the economics of rising real estate prices on demand and supply. “Nobody wants to let go of a lease because they know when they come back to take the same space, they would be paying 10%-20% more,” adds Marwaha.
However, actions don’t seem to be matching words. Last year, TCS said only 25% of its employees (more than 450,000 currently) would work from an office by 2025, while Wipro extended WFH for its 180,000 employees until April 2021. U.B. Pravin Rao, chief operating officer and director, Infosys, gave a succinct explanation for the caution. “While there is an increasing optimism due to the commencement of Covid-19 vaccination, we have also seen a renewed surge of infection in various parts of the world. Consequently, the majority of our delivery centres are operating in BCP [business continuity plan] mode, with almost 97% of our employees globally continuing to work-from-home,” he said in January, when the company released its quarterly results.
While many companies may continue experimenting with the WFH model, a significant part of the workforce will eventually return to an office. But to one with a different environment, to comply with the new social distancing norms. From 80 sq. ft. of space per employee earlier, the requirement has now increased to 120 sq. ft.-130 sq. ft. “As an extrapolation of these changes, I think the need for office space would go up 1.6 or 1.7 times,” RMZ’s Menda estimates.
Moreover, a recent CBRE report pointed out that companies are seeing only about one-third of their projected real estate savings by adopting a WFH model. “Employees are asking for a desk, [an ergonomic] chair and better [Internet] band - width,” says CBRE’s Magazine. “So, if companies want to get the same kind of output from employees working from home, our survey showed that there isn’t a significant saving on office space capex.”
Still, there’s no denying that Covid-19 put the brakes on the office sector’s growth. The net office space absorption in 2020 was about 24 million sq. ft., a far cry from the roughly 60 million sq. ft. in 2019. But compared with the average net absorption levels of about 32 million sq. ft. between 2016 and 2018, the uptake last year wasn’t too bad, falling only 25% shy of the average.
Moreover, office leasing is again on the rise this year and will top 35 million sq. ft., with Bengaluru alone absorbing 14 million sq. ft., according to a report by real estate consultant Savills India. While the e-commerce, healthcare, and FMCG sectors are scaling, the demand is primarily being driven by the IT/ITeS companies. “The India IT story is very intact. The blip in office leasing is only because of smaller companies which can’t pay rents as their sustainable income is lower,” said Marwaha of Prestige Office Ventures. He says that since February, there has been a resurgence in demand among technology firms, at least in Bengaluru.
The Covid-19-enforced global lockdown, ironically, helped India strengthen its leadership position in offering cost-efficient technology services. “India worked as an efficient business continuity location over the last year,” Kaku Nakhate, president and country head-India, Bank of America, said at a press conference in January. “In a way the lockdown has helped India become strategically more important for MNCs who can get value-added work done from India,” she added. Standing testament to that were the stronger-than-expected third-quarter results at TCS, Infosys, and Wipro.
“We are talking to more companies than before. The office is definitely front and centre for every organisation that is coming to India,” says Lalit Ahuja, founder and CEO, ANSR, which has set up global capability centres (GCCs) worth around 8.5 million sq. ft. of office space for Fortune 500 companies in India. Global investors looking for stable yields and regular returns believe the technology sector-driven demand will lead to a robust absorption of office space in India, according to Samantak Das, chief economist and head of research at consultancy firm JLL.
The long-term importance of the office in India was reiterated last October by none other than Canada’s Brookfield Asset Management, which has $550 billion in assets under management globally. The firm acquired 12.5 million sq. ft. of rent-yielding commercial space from RMZ Corp for $2 billion, a staggering amount when lockdowns were expected to kill the office space. It listed Brookfield India Real Estate Trust (Brookfield REIT), with a net issue size of `3,800 crore, in February. REITs, or real estate investment trusts, own and operate income-generating commercial assets. The Brookfield REIT was listed with a portfolio of 14 million sq. ft. of office space across Mumbai, the National Capital Region, and Kolkata.
American private equity major Blackstone, too, spent $1.5 billion last year in acquiring 21 million sq. ft. of commercial assets from Prestige Estates Projects. The deal included five completed and four under-construction office assets, nine retail malls, and two hotels. Blackstone owns the most office space in India, and its two joint ventures, with Embassy Group and K Raheja Corp, have floated REITs.
Clearly, the office doors will open sooner rather than later, but to a much changed interior. The office isn’t just a place with desks and chairs, where people go to write code or emails anymore. “They will become more experiential and immersive environments,” says Ahuja of ANSR. Typically, 90% of an office comprises workstations, while the rest are meeting spaces. What’s going to change, according to RMZ’s Menda, is that deep workspaces will shrink to about 65% and collaborative workspaces, such as coffee bars and lounge spaces, will emerge. A reason why co-working spaces could become integral.
To that end, Prestige Estates Projects saw an opportunity and tied up with co-working operator Awfis to set up six centres, comprising around 4,000 desks in 250,000 sq. ft. of office space. It is learnt that about 50% of these spaces across Prestige’s properties in Bengaluru, Hyderabad, and Chennai have already been pre-leased. However it is worth noting that co-working spaces typically offer 60 sq. ft.-65 sq. ft. of space per person and, unlike in tech parks, that isn’t going to increase.
Office occupancy rates are expected to be back to near 100% by September. Of course, that also depends on the speed of the vaccination drive and the Covid-19 virus not mutating further. That said, Magazine of CBRE makes an interesting observation: “If you go out in New Delhi, the restaurants are full on the weekends, footfalls have come back at malls, there are weddings that are happening that are being attended by several people.” Anecdotally, that’s pretty much the scenario across all the metros. Then why aren’t people back at the office? “It sometimes feels that Covid-19 is only in IT parks and offices,” quips Marwaha.
(This story originally appeared in Fortune India's April 2021 issue).
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