Migration of labour force to delay completion of office projects

The migration of labour force from construction sites, due to the nationwide lockdown, is set to severely impact the completion of large office projects across top seven cities including Bengaluru.

According to property developers, it will not be easy to remobilise labour force once they leave the place of their work. This will result in wages going up as well as a rise in the interest burden for the builders. In addition, tenants at large office complexes have started asking for either rental waiver or deferment.

The supply of office space, which was pegged at 50 million sq. feet across the top seven cities in the country during 2020, will be delayed as the projects are held up due to delay in supply of raw materials.

This will also result in an increase in the cost of labour remobilisation and accumulation of interest.

Similarly, the gross absorption of office space, which stood at 57.9 million sq. feet across seven cities in 2019, is likely to decline by 15-20% in 2020, Shrinivas Rao, CEO, APAC, Vestian Global Workplace Services Pvt Ltd told DH.

“On preliminary grounds, the Covid-19 pandemic is largely seen as bearing a short-term impact on the office space demand scenario. Despite relative optimism, it remains to be seen whether the projected net office space absorption for 2020, is met, given the magnitude of the outbreak in the US and other European countries,” he said.

Majority of office projects, at present, looks unlikely to be completed on time.

Construction will take a hit on account of the labour force staying away during the lockdown.

“Labour mobilisation will be a short-term challenge for the industry. With control on the pandemic, the mobilisation of funds and labour will not have a large impact on delivery timelines. There will be a delay of at least 3 months for the final delivery of spaces,” said Sarveshaa SB, Managing Director, Bhadra Group.

Corporates are expected to defer their decisions on fresh offtake of commercial spaces by at least a quarter, owing to the indefinite nature of the outbreak. This could, over a period of time, limit capital expenditures.

While leasing decisions may go in for deferment and re-evaluation in some cases, supply is expected to be hampered substantially.

In some quarters, demand for deferment or waiver of rentals on commercial properties may arise, by way of invoking force majeure/act of God in the existing rental agreements, Vestian Global said.

Agreeing with the report, Subrata Sharma, CEO, Commercial, Brigade Enterprises said, “There is a lot of uncertainty in the market. We are already getting requests from tenants to waive or defer the rentals. However, it is very difficult to accept for office projects at this stage.”

The steep decline in the net cash flows is expected in the short-term as construction activities become overdue over a prolonged period of time. The cost of finance for builders will be increased due to stalled projects which in turn will increase liabilities on the bank and decrease the demand for construction finance, the report said.