☕ Periscopes out

Good morning, when we are out of the woods, we can resurface, open up the hatches and feel free under the blue sky again. But for now, we are only good to raise our periscopes and take a look ahead. 

That being the essence of today's Chai, we have three blurbs that give us the what-lies-ahead talk and then there's NASA looking reeaaaally ahead. 

Hope you enjoy this morning's reads. 


Out Of Office

The COVID waves are ebbing and as our worst memories slowly go out of focus, we, as in workers and students, are migrating back to the metros to finish what was interrupted by the pandemic. 

While this certainly means that demand for offices is higher than before, commercial real estate vacancies are still quite high, thanks to a bit of an oversupply situation.

What Do The Numbers Say?

Per JLL, till the end of September 2021, net office space absorption stood at about 15 million sq. ft. while new completions have reached ~35 million sq. ft. (almost 2020 levels).

With limited interest registered in this newly added supply across major markets like Bengaluru, Mumbai, Hyderabad and Delhi NCR, overall vacancy levels increased to 16.4% by the end of Q3, FY21.

Just so you know, this is the second year in a row when demand and supply of offices aren't exactly seeing each other eye to eye. 

In 2020, suppressed net absorption levels of 25.6 million sq. ft. could not keep pace with new office completions of 36.3 million sq. ft.

Are Things Improving?

Per Edelweiss data, Q2, FY21 witnessed a 48% increase in demand YoY and 21% QoQ, at 4.3 million sq. ft. 

However, demand in Jan-Sept, 2021, at 11.5 million sq. ft. is 14% lesser compared to last year, due to the pandemic’s adverse impact.

Experts opine that with steady construction and deliveries in the office space segment, the demand-supply gap has widened currently.

But with demand expected to see an uptick in the coming quarters, vacancies are likely to return to sub-15% levels by the end of 2022.

Looking Ahead

Thankfully, supply of commercial real estate has reduced by 9% YoY, and by 3% QoQ, at 6.9 million sq. ft. in Q2, FY21. 

This needed correction happened due to developers holding back release of new supply to instead work on leasing their already vacant inventory.

Also, many commercial projects under construction initially slated for completion during Q3, FY21 have been deferred to the next quarter or slightly beyond to let the demand supply gap level out further. 


Monday Morning Greys

Car parking on Queens Road, Bombay, 1950s. [@IndianHistoryPics]


Let's Get Real, AI?

Yes, we have seen the movies and read up on space-age articles which give us an impression that Artificial Intelligence (AI) is now secretly powering real estate technology like never before. 

Truth is that the closest you can come to AI in real estate today, is when you interact with a chatbot bearing a fancy western name. [Indian proptech folks - please call your chatbots Madhu or Madhav, for example.]

Please note that you your CV may have actually met with a lot more sorting AI, being used by large MNCs to filter out apt candidates from thousands of applications.

BTW, such AI software are now being re-examined for botched up candidate selections globally.

Present Day Uses of AI

Real estate is a process heavy industry, made heavier with the sheer amount of documents, checks and verifications to be handled on a daily basis.

Presently, Artificial Intelligence is thus being developed and deployed to automate tedious data abstraction and verification processes.

Finance/Insurance Intelligence - This will reduce reliance on manual data review processes associated with managing home buyer mortgage/insurance programs by introducing AI-powered data abstraction capabilities.

As a result, home owners/renters and operators can automate and simplify mortgage/insurance management and create a better experience for renters and property management staff.

Contract Intelligence - Real estate and related contracts can be bulky and cumbersome. The latest proptech modules use AI to automate the data extraction and contract review process.

This makes it significantly faster and more accurate than traditional methods of assessing property documents such as manual lease abstraction.

Check Point Intelligence - Leverages AI to map ID scans with facial recognition to provide more accurate and secure identity verification at access points, while renting or even during property registration in the future.

💡 P:S: When you walk into a room and the lights come on, or the aircon adjusts to cooling needs automatically, it's not AI but some electronic sensors doing simple functions. 


Half A Cup Extra

  • Commercial real estate market in low-Earth orbit heats up as NASA gets third pitch for building a private space station
  • Illegal construction in and around the Corbett Tiger Reserve is a glaring example of administrative failure, says NTCA.

The Show Ahead

The world over, real estate is battling two demons - one, a cyclic downturn pushed down further by the pandemic and two, a long term disruption brought about by the changes in the way we live and work. 

Here's a quick look at top trends in the world's real estate markets.

Asia-Pacific Leading Recovery

This is due to the fact that major APAC economies faced the pandemic in better shape when compared to most Western economies.

Also, major Asian countries have managed the crisis with more surety so far, which is a big reason why global investors are increasing their allocations of capital to the APAC region, India included.

Low Interest Rate Is A Tailwind

Despite the risk of greater volatility arising out of fiscal stimulus being applied on a global scale, a super easy monetary environment is keeping interest rates low for the time being.

That's resulting in a higher yield spread for real estate than other asset classes, making real estate very compelling to investors. 

Many global experts believe the inherent attraction of real estate income is even stronger this year than in pre COVID times.

Bifurcating Prices

There is a widespread acceptance in the belief that distressed real estate debt will increase once the government support packages are withdrawn across the world.

Due to this stress on occupier markets, “a bifurcation in pricing” phenomenon is being reported by many experts.

This means prices are now different between favourable sectors like logistics, which have provided stable income during the pandemic and those sectors that have been worst hit, like parts of retail and hospitality.

The Shared Economy Is Back

Most experts believe that employees will eventually return to the office, though in more of a hybrid working model and no matter how you look at it, the need for more flexible space is inevitable.

From an investor point of view, a polarisation is predicted between perceived high-quality buildings — modern and adaptable — and outdated and inflexible secondary stock that is likely to witness a marked decline in demand.

In one sip - old office buildings are passé.

ESG Measures Are In Full Swing

The let's-go-green effort to reduce emissions, with net zero in its crosshair is finally being widely accepted as an investment in the future of the business as well as the planet.

Compared to just 2 years ago, a far greater level of collaboration - to address the complexity of decarbonising the built environment - is already underway. 


Please note that your next meal should have some soul in it. It's Monday morning and nothing great (this week included) ever started with someone eating a salad. Go on now.

More blurbs tomorrow. 💚

☕ The Crew@Ginger Chai

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