Hybrid working merely a transient and temporary trend, says DLF

All the world over, companies are engaged in active conversations about the future of working — a large part of this revolves around hybrid workplace models — but India’s largest commercial real estate operator, DLF, believes the good old office building isn’t going away anytime soon.

In fact, the company's managing director of the rental business, Sriram Khattar told CNBC-TV18 in an exclusive chat, that the two-year-old migration to hybrid working since the start of the COVID-19 pandemic is merely “a transient and temporary” one, born out of companies experimentation owing to uncertainty over the pandemic itself.

"We believe that the trend (hybrid working) in the last two-and-a-half years was a transient and temporary one, and it came at a time when tenants were trying to figure out how the pandemic would pan out in the long term,” said Khattar, "We don’t see this trend carrying on for long if there is no strong COVID wave."

The bigger problem with hybrid working according to the DLF boss though, is that there is still no set definition of what it entails. “Hybrid working emerged out of a strong, adverse psychological reaction to COVID, which was unprecedented since nobody knew where we were going,” he said, “But as I talk to CEOs of large, multinational companies, none of them have frozen plans of what hybrid working is going to be. Everybody has a different definition of what hybrid is."

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Khattar’s observations come even as DLF has decided to invest Rs 5,000 crore in a new commercial development in Chennai, to develop 27 acres of Grade-A office space. The project, DLF Downtown, will also see Chennai turn into DLF’s second-largest commercial market, after Gurugram.

According to Khattar, DLF’s commercial buildings will see occupancy in excess of 90 percent by the first half of FY 23, as India makes a “quicker than estimated” comeback to the office. The projection, he added, was born out of the pent-up demand for commercial space that could show up this year.

"Other than the initial thrust in 2021 where weaker tenants wanted to cut down on office spaces by 5 to 8 percent — and they did — I see the trend reversing completely," Khattar said, "Now, some of the larger international companies with stronger backbones want to come back and take spaces."

It isn’t just hybrid working that DLF is sceptical about. Khattar hinted that the company isn’t exactly gung-ho about expanding their portfolio of shared workspaces or building hub-and-spoke workspaces, both of which have emerged as strong post-COVID trends.

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"Among DLF’s commercial buildings and IT parks, only around 5 to 6 percent are shared workspaces,” said Khattar, “We are open to increasing the market share of our shared workspaces in our market share if the need arises, however, we also need to protect our portfolio against the risk of smaller co-working space occupiers not meeting their obligations to us."

He added that DLF would like to continue attracting larger tenants and keep a close tab on the quality of their enterprise clients, most of whom require large-format offices as opposed to co-working spaces. As a result, the company’s shared workspace share within its own commercial portfolio is likely to stay at 5-6 percent.

These observations come even as a recent Anarock-CII study predicted that shared working spaces would see their pan-India market share go up from 3 percent to 4.2 percent over the next 12 months, while registering a growth of 15 to 20 percent.

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Khattar said there was no clear market in favour of DLF building Grade-A office spaces in tier-2 towns either. “We don’t see the market demanding that we building more IT offices in tier-2 towns,” he said, “We have not seen large, international companies adopt a hub-and-spoke workplace model in smaller towns or demand A-grade office spaces in tier-2 towns."

Given the ongoing post-COVID recovery in commercial real estate, the DLF Rental boss said he expects vacancies at commercial properties to sink to single digits over the next six months, accompanied by a slight increase in rents, which have been flat over the last couple of years.