Urban Realty : From Crowd to Cloud

 

 

Urban Realty : From Crowd to Cloud

 

 

Also published in  moneycontrol.com 

Idea in brief : Agriculture economy lasted millenniums, industrial economy for centuries, and within decades of service economy dominance, we have the cloud economy. 

The birth of cloud economy has interesting implications for all those connected with real estate sector

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One hectare land :

 

…..When used by Agriculture employs 10 people 

 

……When used by Industries, employs 100 people

 

……When used by Service economy, employs 1000 people

 

 

With migration of jobs across sectors, the workplace has secularly been getting densely crowded. However, the new movements called WFH ( Work From Home) and WFA ( Work From Anywhere) have suddenly turned the workplace from  ‘Crowd’ to ‘Cloud’. And this disruption has bought about several interesting nuances : 

 

·      Agriculture sector remained dominant economic activity for several millenniums, industries dominated couple of centuries and within a few decades of dominance of service economy, the cloud economy got born.

 

·      All along, mode of transportation to workplace has been the key determinant in the location of home. But in cloud economy, transportation itself remains irrelevant.

 

·      Mega cities have remained attractive for young professionals as they could boast about job opportunities, shopping experience, multiplexes, network of professionals etc. E-commerce, OTT, zoom calls, social media have blunted all these advantages in the cloud economy.

 

 

 

These critical nuances have significant implications for everyone connected with the Real Estate sector, be it developers, planning authorities or the Govt :

 

 

A.   Developers

 

Historically, workplace has been the key determinant of 4 Ps for marketing for developers. 

Farmers preferred living in villages, mill workers preferred homes within walking distance from mills ( e.g. Parel, Byculla) and white collar employees have liked homes close to their office.  

 

While the jury is still not out on whether WFA will be for all five days or only for a couple of days in week. Also whether it will be for 5% of the nation’s workforce or for 50%. However, it is beyond doubt that WFA is here to stay.  Therefore, one trend is definitely clear - increased preference for homes that are WFH ready. Going forward, the market will see a rising demand for 4 BHKs in suburban areas which typically had 3 BHK as the largest apartment. Lower interest rates will only strengthen the trend.

 

The competition that commercial office space will face from WFA is akin to the competition faced by landlines  from mobile phones twenty five years back. While, mobile phone saw increased usage but for a very long time, users continued with landline as well.  Beyond a point, landlines saw a drastic fall as it lacked innovation. Office spaces, therefore, are unlikely to die down immediately. However, for longevity, offices will have to innovate. In cloud economy, businesses may prefer ten offices of 50,000 sft instead of one centralised 500,000 sq ft office which may keep the gross office space demand intact. However, innovative  add-ons like recreational spaces, socialising avenues etc. within office space will provide office space longevity in their fight against the new rival called ‘home’. 

 

 

 

B.   City Planning Authorities

 

WFA does not mean an immediate large scale workforce migration from megacities to small towns. Factors like spouse’s employer not allowing WFH, children’s schools, affinity to the community etc. are sure to provide succour to mega cities in the short term. But to attract workforce over medium and long term, cities will have to build newer competitive advantages like public recreational spaces, rental housing, healthcare infrastructure, educational institutions and vibrant city culture. 

 

And with lines between homes and offices get blurred, planning authorities will be better-off redrafting and relaxing zoning regulations.

 

 

C.    Government

 

Government will face a unique challenge.  As home-buyers prefer larger apartments, developers will find the mid, premiere and luxury home segments very lucrative. With one-third of the developers having closed their shops during last few years, the surviving developers will have their hands full in these lucrative segments and will shun low yielding affordable housing projects. Government will face challenges in finding developers who can fund and take forward affordable housing projects. 

 

The solution lies in creation of a scalable model for mass rental housing, where investments from low-yield dollar based funds can be channelised. This, however, comes with its own problem of foreign exchange risk. Towards this, one possible option is to use to Affordable Housing subsidy to provide the forex cover to institutional investors in rental housing. Government will, therefore, need to take a very pragmatic call. It will have to look at Rental Housing as an urban infrastructure and not as a realty play.

 

 

 

So, from the sparsely populated workplace in the agricultural era that reigned for millenniums, we have experienced the crowded workplace of the few decades long service economy. With ‘cloud’ beginning to characterise the workplaces, the true landscape of real estate will be known only with passage of time. However, two things are sure. Time duration of dominance of cloud economy will be less than few decades. And secondly, uncertainty & unpredictability will be its key traits. After all, what are clouds known for J

 

 

 

-       Deepesh Salgia