Experts analysis of CRE Trends 2019 have been complex, multi-layered and have unpredictable results. Structural reforms, affordable commercial properties, Benami Transactions Act- all of these measures have given a push to investments in India making it a favorable destination for investments. Also, as per the Ease of Doing Business Index 2018, a report by World Bank, India moved up at 30th rank among the 100 countries owing to its continuous policy reforms and liberalization of Foreign Direct Investments (FDI). The evolving business models and competition along with excessive use of technology has changed the tenant and investor relationship model redefining commercial real estate industry.
In 2017, office markets witnessed the growth, reaching 26 million sq ft of new spaces being occupied in whereas in terms of retail markets, with healthy supply pipeline and robust absorption, the future seems bright. On warehousing front, due to advancements in technology, the industry has undergone rapid transformation and evolution. It is difficult to ascertain any of the predictions like whether technology in neara future will offer more opportunities or will be the reason behind driving out of small players from market?
Here are broad trends and innovations which are expected to shape the commercial real estate industry in the upcoming year:
- Private Equity inflows into commercial and IT from 2014 onwards till date has been 150% higher than previous seven years inflows combined. The coming years are expected to surpass the India’s Grade A from 530 million sq ft to 700 million sq ft. Also, the contribution from IT to office absorption has been at 39% in first half of 2018. The office absorption is likely to rise in 2019 in medium-term due to strong economic fundamentals and positive occupier and investor sentiment.
- More relocation and consolidations are expected in the suburbs as world class infrastructure development is easier and less expensive here. This will lead to rise of rentals in most of the suburban sub markets at faster pace. This will be driven by the demand for superior Grade A assets, quality infrastructure and proximity to talent pools. Non IT occupiers are gradually going to suburbs for newly available quality assets.
- Increased urbanisation and consumerism have acted as growth drivers for retail markets. In first half of 2018, India’s Grade A retail completed stock stood at 77 million sq ft which is expected to grow 34% by 2022 to reach approximately 103 million sq ft. Net absorption of retail spaces is projected to increase notably in near to medium term sue to coming up of quality supply in various cities. Delhi NCR is likely to see the highest absorption during 2018-20 followed by Hyderabd, Mumbai and Kolkata. Rents for retail spaces are likely to increase marginally with Mumbai taking the lead. During last year Chennai, Pune and Mumbai witnessed maximum growth of rental.
- Warehouse tenants are looking for technological solutions including Digitalisation, Network Collaboration and Application of Automation to achieve greater efficiency and optimasation of spaces within warehouse. Also, the overall warehouse absorption has gone up by more than 35%. Large infrastructure projects like DFC, Sagaramala and Bharatmala will impact the growth of warehousing industry offering better connectivity and accessibility across the country.
- Technology advancements and interconnection will have higher influence on CRE business models. In a survey by Deloitte, nearly 53% respondents believe that technological advancements will have greatest impact on legacy properties within next three years whereas 15% believe that the impact is already visible. Also, more than a quarter (26%) of investors believed that the commercial space provider companies should focus more towards the use if Internet of Things (IoT) in designing buildings.
- The commercial real estate sector will remain a strong beneficiary of India’s economic growth. Foreign and domestic organisations continue to steadily invest in India’s skilled labour and investment friendly climate by committing to large office spaces all across the country.
- An analysis of quantum of absorption by Colliers, Bengaluru leads the domestic office market with 34% absorption of total leasing volume followed by National Capital Region (NCR) at 26% and Pune at 16%. In addition, the report also stated that Grade A vacancy rates in Bengaluru, Pune and Chennai are likely to remain at low to 6-9% through 2020.
- According to Ramesh Nair, CEO and Country Head, JLL India, “net absorption has remained stable for past few years, but it is expected to be at around 32 million sq ft by the end of 2018 and close to 35 million sq ft by the end of 2020.”
With the continuous increase in demand for commercial properties in India, the future is expected to be bright for Indian commercial real estate sector. Overall, strong economic fundamentals, ongoing reforms and technological advancements will continue to give a boost to the sector. Increased participation of institutional investors and growing transparency in commercial real estate industry will give a further boost to investments in this sector.
- Future of India Real Estate: Deciphering the mid-term perspective; September 2018 Edition. Co-created by JLL and FICCI
- 2019 Commercial Real Estate Industry Outlook by Deloitte
- Colliers Report