In case you were wondering what was the big C-word that Indian developers and industry players were referring to, it is commercial real estate, the big winner for investors in India over quite some time now and the expected growth driver for the entire sector going forward. In fact, going by current market trends, commercial real estate may just be in for a blockbuster year in a manner of speaking!
There is huge demand for commercial real estate from business sectors like co-working, IT and ITeS, consulting, retail and e-commerce among others. This segment has witnessed steady growth over the last few years on account of expansion of several MNCs, corporates and other players in the country and latent demand for quality office spaces. Several new brands and retailers have also posted steady growth in India over the last couples of years due to increasing tax advantages and the overall ease of doing business. RERA and GST have also added to the overall sectoral transparency and are expected to boost demand over the long haul.
Commercial realty in for a stellar year
While residential real estate segments are steadily recovering courtesy the cut in GST rates and other pro-active measures, commercial real estate has been doing very well as per several studies and reports. Here are some key pointers worth keeping in mind in this regard:
- Reports state that overall acquisitions of flexible spaces in the country went up by a whopping 277% (year-on-year) to touch 2.9 million sq. ft. for the first quarter of this year.
- This indicates growth of 70% on a quarter-on-quarter basis in the flexible space category where Delhi-NCR and Bangalore are the biggest mark.
- Experts forecast that several big corporates and MNCs will be taking up more seats in comparison to start-ups in 2019 and beyond.
- Real estate developers will also be focusing more on keeping occupancy rates at healthy levels.
- Well established companies will take up more seats and developers will look to come up with customized offerings.
- Experts feel that leasing of commercial office spaces across India’s 8 key cities will surpass 100 million sq. ft. in the entire period for 2018-20.
- Co-working spaces have increased rapidly throughout the country, having surpassed 3.5 million sq. ft. last year as compared to 2017’s tally of 1.1 million sq. ft.
- At the onset of this year, the forecast is highly positive for Indian real estate, particularly in the commercial realty category.
- Real estate in the country should touch $1 trillion in terms of market size by the year 2030 in comparison to $120 billion in the year 2017.
- With several new businesses being implemented in the country, there will be strong demand for contemporary office spaces from regular companies and start-up alike.
- Several new investors and NRIs are already considering investment opportunities in India including its commercial real estate sector on account of the country’s business friendly environment at present.
- The co-working segment should be a key growth driver for commercial real estate as estimated by experts. Studies state that more than 90% of shared workplace operators in the country (more than 300) commenced operations over the last 15-18 months.
- India is now the third biggest hub for start-ups globally and its employee base has already surpassed one million. These figures should double by the year 2020.
Other market trends worth noting
- With India’s first REIT being listed, several investors are now eyeing opportunities in commercial real estate which is expected to generate solid returns over the future.
- The Blackstone-Embassy REIT was oversubscribed, indicating that this is a great time to invest in commercial property.
- Small investors are also exploring this as a new investment avenue now that REITs have come into the picture.
- Decent commercial properties usually generate returns anywhere between 6-10% annually which is higher than residential real estate yields.
- The commercial office market started growing even more rapidly from the year 2017 onwards and there is considerable demand for Grade A office spaces while demand is further bolstered by comparatively affordable rentals and the trend of co-working spaces.
- 11 million sq. ft. approximately in office space was absorbed for the first quarter of this year. The key market was Bangalore and it was followed by Chennai, Mumbai and Hyderabad.
- New supply in this segment stood at 7.5 million sq. ft. for Q1 2019 which indicates growth of almost 11% across India’s 7 major cities.
- Grade A office space is hugely in demand across Delhi-NCR, Hyderabad, Mumbai, Bangalore, Pune and Chennai.
- Gurgaon is a major investment hotspot in Delhi-NCR for those NRIs who are willing to invest in commercial real estate.
- Gurgaon and Hyderabad have witnessed 3% and 11% growth in rentals over the last couple of years while this is 12% and 10% for Chennai and Bangalore respectively. Mumbai and Pune have witnessed 5% and 10% rental growth in this period.
As can be clearly observed, the commercial real estate market is on an upswing throughout India’s major cities and with more start-ups, co-working operators and big companies looking to expand their operations in India over the next few years, this could well be the sunshine sector for Indian real estate going forward. Experts estimate that 2019 will be a good year for Indian real estate overall with much of its growth coming from commercial real estate.