‘Fasten Your Seatbelt – Meraqi’s Latest Report Sheds Light on the COVID-19 Effect on Indian Real Estate Performance and How to Navigate the ‘New Normal’

COVID-19 Effect on Indian Real Estate Performance
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Meraqi, a strategic real estate solutions firm, has published a new report that assesses the impact of the COVID-19 virus on the different segments represented within the Indian Real Estate sector. Below are the highlights of the report:


COVID-19 has had a major impact on real estate across asset classes, with major disruptions in demand and challenges on supply related activities such as construction. Different asset classes have had varying degrees of impact and will have their own distinct recovery rates.

In their assessment:

  • Warehousing, Datacenters and Healthcare have seen minimal disruption and will grow rapidly
  • Co-living and Student Housing will face some disruption now but look stable in the long term
  • Residential will struggle in the short term but recover at a brisk rate
  • Other asset classes (Office, Retail, Hospitality) are likely to witness structural shifts in demand

Situation Overview

COVID-19 has led to the need to strike a fine balance between the public health imperative and the economic need to sustain human livelihood. While India has enjoyed the advantage of entering the pandemic later than other major economies, it faces the specter of punishing costs of instituting a lockdown on a vibrant economy and a challenged public-health system. Real estate owners and investors have to now navigate the ‘new normal’, where the old rules won’t necessarily apply and all of our collective learning, experience has to be harnessed to benefit portfolios and property values.

Asset Class Wise Impact

Office Spaces

  • Structural shift in demand with occupiers contemplating long-term work from home norms for between 30% to 75% of the workforce; resulting in space requirement reduction (for existing & new growth) by 20% – 50%.
  • Increased vacancy levels and lower demand for new office space
  • Annual absorption to drop by 60% to 24 million sq.ft.; supply by 40% to 25 million sq.ft.; rentals will reduce by 10% to 30% across different micro-markets in 7 Tier 1 cities in 2020


  • Will witness a tough period for next one year but gain from increased demand in the long term
  • Short-term revenue dip by 25%-40% compared to pre COVID-19 period foreseen
  • Temporary drop in rental revenue and lower space utilization per seat owing to de-densification
  • Will emerge as a preferred workplace option in the long-term with revival in demand and revenue to pre COVID-19 levels.


  • Will contract in the short-term but can be revived based on product innovation
  • Residential market absorption to reduce by 40% in 2020 with 50% reduction in new launches
  • Price drop in the range of 15%-25%
  • Will witness increased demand for residential units with flexible layouts (to support working from home) and low rise developments, including villas and row houses, in peripheral locations


  • Structural shift in demand, despite the early reopening of shopping centers (June 8th 2020) in most cities
  • Will take a few quarters for footfalls to revive
  • New leasing is likely to remain suspended for the remainder of the year with new supply deferred to the next year, and dip of 25%-45% in rental revenue this year
  • Higher adoption of e-commerce and omni-channel retail channels will lead to lowered popularity of stores and malls and demand drop of 20%-40% in the long term.


  • Relative one of the better performing asset classes during the crisis and likely to continue doing well going forward
  • May witness drop in annual absorption by 20% to 32 million sq.ft. compared to pre COVID-19 projections
  • Supply expected to contract by 10% to 22.5 million sq.ft. but rentals are expected to remain insulated from crisis and maintain current levels
  • Expected to continue to do well owing to acceleration of e-commerce and omni-channel retail


  • Hardest hit sector and expected to take the longest period to revive
  • Overall occupancy levels in 7 major cities will drop by 55% from pre COVID-19 estimates
  • RevPAR will drop by 56.2% compared to 2019 levels
  • No fresh supply expected in 2020 (likely to get pushed into next year or even into 2022)
  • Long-term impact from changing customer behavior, reduced travel resulting in demand drop by 20% -30%
  • Domestic leisure travel to gain owing to limited international travel; resulting in increased preference for low density developments such as resorts and home stays

Alternative Living Assets (Co-Living and Student Housing)

  • Linked to the operations of office space and education institutions, these products are witnessing low occupancy during the lockdown period but will see rise in occupancy post reopening of office spaces and education institutions
  • In the long-term, COVID-19 may not have affect demand levels for this asset class as long as the operational practices promote safe living

Possible Implications on Real Estate Investment

  • Volume of investment by institutional fund houses to drop by 40% – 60% for the next 2 quarters
  • Yield rates for commercial assets likely to rise by between 50bps to 300 bps based on building quality, location and use
  • Unleveraged property valuations for office space to drop by 15% – 35%; for hospitality and retail by 25%-50%
  • Interest rates for structured debt to increase by 200 bps to 18% – 20% and will be available mostly for completing projects already at advanced stage of construction
  • Continued interest in investing in Warehousing, Datacenters and Healthcare projects
  • For other asset classes investor focus on “price discovery” and asset management in near term
  • Fund-raising to slow down for the next few quarters as investors would be assessing the future based on findings
  • Opportunistic investors will look into marginal and distressed buy-out opportunities, most likely to be found in the retail and hospitality sectors

Way Forward

The Indian real estate sector will witness a long-term impact on its performance and productivity including higher growth rate owing to favorable global positioning, greater use of technology and automation, a higher priority provided to public healthcare, a more mature perspective being ascribed to environmental sustainability and improved business transparency. To successfully survive the current crisis period, it is important for property owners and investors to act on issues pertaining to business continuity and the welfare of its employees, tenants and partners; and to plan response to expected permanent changes for the industry after the crisis.

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