Commercial Real Estate Market India: Types & Trends

Following the COVID-19 outbreak, India’s commercial property market has experienced exponential growth. Despite difficulties in 2020 and 2021 caused by the pandemic, which resulted in the closure of cafes, restaurants, clothes shops, supermarkets, stores, movie theatres, and businesses, the industry still has a promising forecast for 2022. The expansion of the commercial real estate market in India has been accelerated by the steadily rising demand from renters from a variety of industries. A promising future for the real estate sector is also being paved by the consistent demand for commercial real estate.

What is Commercial Real Estate Market?

Commercial real estate (CRE) is land that is used solely for business-related activities or as a workspace, as distinct from being occupied as a residence, which would fall under the category of residential real estate. Most commonly, renters lease the commercial real estate to conduct businesses that bring in revenue or generate income. This vast category of real estate can range from a small shopping mall to a single storefront. Office space, restaurants, hotels, shopping areas, dining facilities, and healthcare facilities are just a few of the different types of commercial real estate. 

Commercial real estate markets typically have high population concentrations that are dispersed throughout a number of areas or sub-markets. An interdependent economy that often favours at least one sector binds real estate markets. Investors frequently examine sub-markets within the larger market where a property is located, in addition to that market as a whole. Sub-markets give investors a more detailed understanding of the location of a property, as well as the consequences for business, culture, and other factors.

Commercial Real Estate Market Overview

During the projection period of 2022-2027, the Indian commercial property market is anticipated to expand at a CAGR of almost 13%.

A work from home (WFH) culture emerged as a result of the COVID-19 epidemic, and this had a short-term effect on new space constraints. In 2020, there was 36.34 million square feet of new office space in the seven Indian cities, which was a 30 per cent decrease from the previous year. However, it was anticipated that the office leasing market would start to recover in 2021.

Over 700 million square feet of Grade-A office space are expected to be occupied by 2022, with Delhi-NCR accounting for the majority of this demand. The demand for total office space leased from consulting businesses increased by 36% in Mumbai in the first half of 2020.

In 2020, the manufacturing industry leased 5.7 million square feet of office space, or 24 per cent of the total. SMEs and manufacturers of electronic components leased the most space between Pune, Chennai, and Delhi NCR, while the automobile industry leased in Chennai, Ahmedabad, and Pune came in second. 34%, 26%, and 9%, respectively, of all office space rents, were in the 3PL (third party logistics), e-commerce, and retail sectors.

The commercial property market is seeing substantial growth in the retail and hospitality sectors as well, giving India’s expanding demands the infrastructure that they need. Large-scale institutional investments are anticipated to drive India’s commercial real estate sector in the upcoming years. 

Government programmes like Make in India and other real estate reforms like the implementation of the Real Estate Regulatory Authority (RERA) and GST have significantly strengthened the country’s commercial property market. Developers and investors are relocating to the commercial real estate sector despite its initial difficulties because of the sector’s transparency and expertise, which has drawn rising amounts of foreign direct investments (FDI) in real estate.

Commercial Real Estate Market Trends & Types

Increased Growth in Office Markets

Office occupancy increased significantly in 2021, rising by more than 80% in about 390 major cities worldwide. Additionally, since the third quarter of 2021, 30 million square feet (MSF) of office space have been occupied. While the sector’s rental growth is currently in a gradual recovery phase, it increased significantly in EMEA.

Additionally, Class-A offices occupy more than 61 per cent of the office space, followed by Class-B and Class-C offices with 32 per cent and 7 per cent, respectively. In addition to that, the Asia-Pacific (APAC) region is dominating the office market as a result of rising middle class consumers, population expansion, and GDP development. The APAC region accounts for more than half of the world’s office buildings.

Retail Sector Expected to Grow Significantly

Despite the disruption caused by the COVID-19 pandemic, the retail real estate industry had a tremendous expansion, which was fueled by the digitization of work, the restructuring of physical retail, and a push towards environmental, social, and governance (ESG) factors. Additionally, the retail industry is facing numerous difficulties from the e-commerce industry and shifting consumer behaviour due to the pandemic. Despite these difficulties, the industry survived because, in a pandemic, e-commerce sales made up only 14% of total retail sales.

Furthermore, developers are concentrating on various tactics in order to match consumer demand and adapt to the evolving retail environment. For instance, repurposing shopping complexes, adjusting tenant mix, and creating new lease models to entice the newest business models. Meanwhile, some retailers are growing their businesses using omnichannel techniques, such as curbside pickup, click-and-collect, and shipping from store, in order to meet consumer demand. 

Furthermore, the Asia-Pacific area saw the greatest gain in retail sales, followed by the United States and Europe. Retail sales increased across a variety of industries, including in-store sales, groceries, clothes, department stores, restaurants, and bars. In-store retail experienced the largest revenue growth between 2019 and 2021.

Hybrid Model Highlights Necessary for Office Space

As work arrangements and hybrid offices take centre stage, office spaces are once again gaining respect. They are successfully incorporated into businesses’ portfolios for managing real estate assets. In order to provide businesses with the most up-to-date technologies for improved workspace management and support with data-driven solutions, the year 2022 will witness a total transformation of office spaces into dynamic and smart working environments.

Lease Activity Will Continue to Intensify

Businesses are making great future plans. Senior accountants and financial experts who are in charge of a company’s rentals are moving ahead slowly but very strategically. Businesses are updating their real estate investment holdings to mitigate the pandemic’s effects. The lease activities are expanding as the varying circumstances that began this year are slowly returning to normal. Real estate specialists have predicted a growth rate of 5% this year and an increase over the next quarter. 

E-commerce Effects 

E-commerce has a negative influence on traditional brick and mortar retail. However, these effects might just be a little exaggerated. People still prefer to eat at cafes and restaurants, go out to salons to get their hair cut, and make other in-person purchases. Retail vacancies remained high at about 10.4%in 2022, despite a 20 basis point decline during the year 2021. 

Commercial Real Estate Industry Outlook

The Indian commercial real estate market has mostly held up despite the COVID-19 pandemic’s ongoing cyclical ups and downswings. Here’s the sector’s future trajectory for 2022 and how elements like technology and ESG are changing its dynamics in the real estate industry. Below are the commercial real estate industry’s outlook projections for 2022:

Economy: Despite certain downside risks, such as rising inflationary pressures, India will continue to lead global economic growth.

Office: A boost in long-term decision-making by occupiers is anticipated, as is positive demand-side momentum.

I&L: Supply pipeline to be dominated by next-generation logistics facilities and leasing activity to continue vigorously.

Retail: Pent-up demand will boost activity across the retail sector, and the cooperation between traditional and digital retail firms will accelerate.

Residential: Strong sales and new launch momentum will likely be continued; diverging capital value appreciation trends are quite probable.

Investment: Investment activity is likely to increase by 5–10%, and ESG considerations will take priority during due diligence.

Flexible Spaces: Core + flex techniques are projected to become more prominent in light of portfolio development and hybrid working.

Data Centers: A heightened shift from captive to colocation in data centres is predicted; a better supply and increased investor interest are also anticipated.

Co-living: With the reopening of colleges, universities, and businesses, a significant uptick in activity is anticipated in the areas of student housing and co-living.

REITs: Strong operational and financial performance recovery is anticipated, and new REITs are predicted in the office, retail, and I&L sectors.

Life Science: Positive corporate and investor sentiment will propel the life sciences sector to new heights.

Commercial Real Estate Market Growth

In India, the commercial real estate market is undoubtedly growing. The commercial property market is anticipated to expand at a CAGR of almost 13 per cent from the projected period of the fiscal year 2022 to 2027, according to the Mordor Intelligence study. According to this report, commercial space is also growing quickly, supplying India with the infrastructure it needs to meet its changing needs. Growth in India’s commercial real estate sector is anticipated to be boosted by substantial institutional investments in the upcoming years. The future of commercial real estate does undoubtedly appear optimistic given the favourable conditions that lie ahead.

The demand for commercial real estate is being driven by the nation’s economic expansion. The demand for real estate infrastructure is anticipated to be influenced by governmental initiatives, as well as policies and programmes related to urban development, such as Smart City and AMRUT.

Commercial Real Estate Market Analysis

India’s commercial real estate market was already expanding as a result of the post-nation-wide lockdown increase in demand and price per square foot for property. Commercial real estate offices, storage, special-purpose real estate, and mixed-use real estate are all popular investment choices in India. The commercial property market was quite stagnant in 2020 and the first half of 2021, but things have now started to pick up steam. The residential and commercial real estate markets in India would see greater stability in 2022 than in 2021, when the second wave of the COVID-19 pandemic caused turbulence.

Future of Commercial Real Estate in India

The commercial real estate sector in India has grown more robust recently. The rise of real estate land developers was followed by a significant increase in occupier interest, and institutional money has acted as a catalyst for the growth of CRE. Different industries, including those in technology, finance, and financial services, have shown a lot of interest in this sector. A sustained annual expansion in office absorption is observed with the creation of flexible spaces and the proliferation of co-working spaces.

Indians have long made investments in gold and real estate. Prior to now, residential peripherals were the only real estate investments allowed. The frontiers of industrial investment are now expanding due to the changing times.

The commercial real estate market is also expanding quite fast. According to a report, India’s net office space absorption in Q2 was 4.39 million square feet, up 32% year over year in the country’s biggest cities. The future of commercial real estate is bright because of the favourable circumstances that lie ahead.

Commercial Real Estate Market Size

In 2019, the commercial real estate market was accounted for at Rs. 12,000 crores, i.e., US $ 172 billion. It is estimated that the real estate market will reach a market value of Rs. 65,000 crores, i.e., US $ 9.30 billion, by the year 2040, which is a good jump. 

In 2021, India’s real estate market size was about $200 billion, and it is expected that the real estate industry in India will achieve a market size of US $ 1 trillion by the end of 2030. Massive growth is expected in the hospitality, retail, and commercial sectors of the real estate industry, which will account for a total of 13% of the country’s GDP by the end of 2025.

FAQ’s about Commercial Real Estate Market