Can a US, Europe-like commercial realty slump play out in India? Here’s what Sanjeev Sanyal has to say

Sanjeev Sanyal shared a report that showed that Germany’s commercial real estate prices had slumped 17% from the peak.

​Sanjeev Sanyal shared a report that showed that Germany’s commercial real estate prices had slumped 17% from the peak. 

As real estate prices collapse in Europe and the US due to remote working options after Covid, economist Sanjeev Sanyal on Tuesday pointed to a structural, not cyclical shift, adding that any revival in commercial real estate “will likely need a completely different model”. 

Sanyal wonders what it would mean for investors and policy-makers (including urban managers), if the same dynamics play out “elsewhere (including India) as the tech-driven social changes are happening here too”.

In a tweet on Tuesday, he shared a report that showed that Germany’s commercial real estate prices had slumped 17% from the peak. He said the collapse of the US commercial and office real estate has been stunning as work-from-home and home-delivery have emptied malls, office blocks, and so on.

“However, less talked about, is the fact that it is now happening in Europe too. German commercial real estate prices are down 17% from peak and something similar is happening elsewhere in Europe. This seems a structural and not cyclical shift – and any revival in commercial real estate will likely need a completely different model,” the economist said. 

Sanyal, a member of the Prime Minister’s Economic Advisory Council, said the same dynamics will eventually play out elsewhere, including India, as the tech-driven social changes are happening here too. “One wonders what this means for both investors and policy-makers (including urban managers).”

However, a taxation expert pointed out that the only difference is that the two – Europe and the US – are a shrinking market whereas India is a growing market on the need for office space. “More GCCs (Global Capability Centres) are coming in. The worst we could face is that the commercial RE (real estate) offtake will not be in line with the headcount increase, not sure if we will have a situation of existing space being vacant. Seeing some of the REIT occupancies and signings…I think the commercial RE offtake will still be positive here,” said Ajay Rotti, CEO of tax consulting organisation – Tax Compaas.

German commercial property prices fell 12.1% in the final three months of 2023 compared with a year earlier in their biggest-ever drop, Reuters reported on Monday, citing VDP banking association. For the full year, commercial real estate prices dropped 10.2%, accelerating their decline after small drops of less than one percent in 2022 and 2021. According to the report, Germany’s struggling property industry is suffering its worst crisis in decades.

Commercial property markets in the US and Europe are in the grip of the biggest slowdown since the 2008-9 crash. In March this year, global investment bank UBS flagged the downturn in commercial real estate markets as one of the “top and emerging risks” facing the Swiss bank, as higher borrowing costs and a post-pandemic slump in demand for office space hit the sector. 

“Adverse effects on valuations from higher interest rates and a structural decline in demand for office and retail space may trigger broader impacts given bank and non-bank lenders’ material balance sheet exposure to the sector,” the bank said in its 2023 annual report published on March 28, 2024.

(With inputs from Reuters)

 

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