The path to recovery: What’s next in the Real Estate sector?

From the value of your assets to whether you should go ahead with your next real estate investment - we are here to help with your real estate questions. This QnA, with Ashutosh Kashyap shares top real estate questions that will help you navigate these uncertain times and uncover opportunities that may arise.

Q1. How will COVID-19 influence property cap rates and the value across asset classes?

Ashutosh: Adoption of lockdown as a control measure across the globe has entirely disrupted economic activities impacting almost all sectors. Real estate is one the worst hit sectors in direct terms, while its interlinkage with other business activities further compounds the problem. As an immediate impact of the uncertainty, most businesses would be either conserving cash or those willing to transact would command better bargaining power, in turn resulting in some correction in value in general. The degree of value correction would largely be determined by property’s ability to secure continuity of rental cash flows and vacancy levels. In the present scenario, income projections of almost all corporations is bound to witness some deviation affecting growth plans, which will percolate down to the value determinants of a property. An immediate impact of the same can be witnessed in form correction in value of the property, the degree of which will depend on the type of asset.

A residential asset class, which in most micro markets is characterized  with high inventory, might witness a slight correction. The dissemination of the correction will be manifested in form of lucrative deals  targeted to entice risk averse fence sitters.

Social distancing as a norm (at least in the near term), would imply lower business and disruption in the expected future rental income of a retail property. Tenants would be under pressure and there might be increased vacancy levels in retail malls. The vacancy risk will certainly make its way into pricing determinants. This will be reflected in a correction in value and increased in cap rate.

For commercial offices, the impact will depend on the profile of building as well as the tenant profile. Marquee Garde A assets owing to their marquee tenant profile (largely MNCs) would benefit from secure rental inflows and minimal capex requirements, insulating them to the crisis in near term[1]. Such assets might hold on to their value with almost no correction and stagnant cap rates.

While on the other hand, Grade B assets would surely witness some sort of value correction owing to relatively higher degree of risk with rental income continuity and higher impending capex outflow also implying higher cap rates.

Q2. Should buyers continue with their property acquisition plans? 

Ashutosh: In the present scenario of distress across almost all sectors of economy and impending uncertainty of “what lies ahead”, buying decisions of all non-essentials, especially for salaried middle class will be deferred. This surely implies reduced demand for residential assets especially in Affordable & Mid-Segment. However, better deals always come in such scenarios. This is an ideal buyers’ market, where in lucrative deals can be expected coupled with benefit of lower interest rates on home loans.

However, buyers should exercise caution in selecting the project and the developer as most of the developers would also be financially stressed. For purchase in an under-construction project, the choice of developer should be evaluated on the parameters such as financial strength, capability and track record of execution. One should also factor the construction delays that might happen owing to constraints of lockdown in most of the geographies.

Q3. How long will it take for the market to recover? 

Ashutosh: The pandemic has affected the world in an unprecedented way. In the Indian context, the extent can be understood from the fact that within a matter of few weeks, it changed the way we work, eat, shop, spend, prioritize and socialize. At this juncture, India has managed to check the pace of spread, However, some bit of uncertainty and discomfort persists on account of following:

  • Cases per day are yet to show signs of abating. Most of the researchers are not even sure of the peak levels. We are not yet sure as to whether we have seen the peak, or it lies ahead of us.
  • The extent of lockdown and the extent of spread in the event of relaxation in lockdown

The onset of recovery in the economy and real estate sector will coincide with the trend of recovery from the pandemic, with two prime triggers: (a) definitive knowledge that we are on road to recovery and (b) the news of a potent vaccine.

First one, will be the trigger, after which cautious fence sitters will get into the market. While the second will be an ultimate trigger, which will inject the confidence for businesses to plan with confidence on their strategy to recover.

The extent of recovery in the post-COVID19 world will be a different one. In the short term, there might be behavioural shifts that persist beyond the crisis. For instance, consumers mostly forced to buy online might persist with the habit avoiding closed and crowded retail malls. The preference for online purchase for a wider set of items would imply requirement of more warehousing space at outskirts of all cities event tier II and their III cities. In post-COVID19 world, consumers might avoid leisure travels abroad and would be warry of hygiene while choosing hotels. This might result in propelling need of more branded hotels at major holiday destinations of India.

Another catalyst to recovery could emanate from the changing geo-political equation, wherein India might emerge as a preferred destination for business and manufacturing facilities. Once, we hit the path to recovery, we might even have gains in the post-COVID19 world.


[1] If the situation persists beyond 2 quarters, or worsens drastically, this may not hold true

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Ashutosh Kashyap

Associate Director


Ashutosh leads the consulting practice at Colliers International focusing on North and East India region, with dedicated platforms for developer and occupier consulting. With over 11 years of experince, he has worked across different facets of real estate such as development advisory, funding, financial services, infrastructure, banking, and research in India.

As a consultant, Ashutosh has advised prominent developers, funds as well as other stake holders of real estate sector on pivotal aspects such as market entry strategy, optimal monetization strategy, advisory on transit oriented developments, bid advisory, product mix advisory, financial feasibilities, investment due diligence, techno-economic viability, technical due diligence, etc.

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