Rental Market Expectations Post Corona Pandemic Containment

Real Estate is not only about buying and selling: renting-leasing is a bigger business than a transactional business

While leasing is more synonymous with commercial and retail real estate the return on residential real estate or ROI as it is called, helps us to understand the consumption behaviour in the residential market

We all hope and pray that the corona pandemic is contained as soon as possible, we all are back to work and the economic cycle which has come to a virtual halt starts to move again.

The first reaction to lease rentals in commercial and retail will come with a negative bias. The lessee will negotiate hard on lease rentals. we have already seen certain malls announce free leases to retail outlets for a period of 1-3 months. further, the tenant will renegotiate the lease claiming that the market would be slow and business would not be feasible at current rates.

Commercial & Office space leases will also be renegotiated with a negative bias. As business cycles across the globe go into consolidation with growth taking a back seat at the moment the office space requirement is going to be muted for the next couple of quarters and the already leased space lease rent will be renegotiated. The commercial real estate market is looking into a slowdown for sure.

The GOOD NEWS comes for rentals in the residential sector. The lease rentals have predominantly been low for many years giving a yield in the range of 2-3 %. The rentals in residential real estate will see an uptick as deliveries will get delayed and the buying decision will get affected because of job loss, low employment visibility, and salary cuts which we are already beginning to hear. People will renew their lease agreements even if it is at a little higher rent. This period can be expected to last for 2-3 years

The rentals in residential real estate will surely see an uptick. However, the silver lining in the bleak scenario for residential real estate is that with rentals moving upwards and the home loan rates looking downwards the customer will start making a buying decision as soon as he sees some stability in his job and growth in his organization. The employment data has to be encouraging and the country’s GDP has to be robust. This situation will trigger residential real estate buying once again.

This is also a time when co-living and co-sharing start-ups will be back in flavour and we will see action in this segment. A venture capitalist will start investing with developers and start-ups building co-living spaces. Co-working will also see a positive bias as small and medium-sized office space users will choose co-working against leasing strata or self-owned or self-leased space. Warehousing will further be boosted as the importance of the basic use of a Warehouse has been proven at this time of the corona pandemic.

Here are some key takeaways:

1. Commercial & Retail Rentals will see a negative bias and lease rent will be renegotiated for a better rate by the tenant
2. Rentals in residential real estate to see an uptick. The revival of economic growth and stability in the job will trigger buying
3. Co-living and Co-working will bounce back with a Venture capitalist, PE funds deploying their capital in these businesses
4. Warehousing will do well and rentals will be firm