India is currently on an economic upswing as several studies and reports will have you believe and key to future growth metrics is the performance of the real estate market. Coming to Indian real estate, it has been a bugbear of sorts for investors in the recent past although things have started looking up again. Thanks to Government measures and other reforms, the sector is once again on its way towards making a full recovery and once again becoming the poster boy for the country’s economic progress.
In this context, experts believe that commercial real estate should grow hugely over the next few years. This trend has been further spurred by the big-ticket investments being made by institutional players and other biggies. These have brought in more organization, liquidity and consolidation alike for the sector. The segment has been boosted by major Make in India reforms and also the advent of GST and RERA. There is more transparency and compliance which are being seen in the Indian realty sector and this has drawn higher FDI (foreign direct investment) as well, particularly in commercial real estate.
Key market trends that are being witnessed at the moment
- Investor confidence is growing in Indian commercial real estate and this will continue all throughout 2019 and possibly 2020 as well.
- Investments will be drawn through firm economic fundamentals in the Indian housing market.
- REITs (Real estate Investment Trusts) have already started filling up financial gaps for the industry and will be a major source of funding for Indian developers going forward. REITs will also open up the commercial realty space for regular investors. REITs may lead to higher demand for commercial real estate from business sectors like IT and ITeS and also manufacturing. This should lead to subsequent growth since developers will no longer have to be stressed with funding concerns.
- Co-working and flexible workspaces are expected to generate sizable momentum in the commercial real estate segment over the next few years. Several co-working operators have already come into the Indian market and more are set to follow suit. The benefits including lower costs of rentals and flexible yet mutually beneficial environments will continue fuelling the growth of this segment, leading to higher demand as far as developers are concerned.
- Office space demand is also expected to go up considerably and this will keep the commercial realty market ticking strongly. There have been several reforms undertaken in the segment and the advent of REITs will naturally propel developers towards offering high quality office spaces, particularly to meet rising demand in the service sector which is forecasted for 2019. Experts predict average annual demand in the office space category to be around 46 million sq. ft. until the year 2021.
- Warehousing and logistics will also be major demand drivers. The expansion in these sectors will be another shot in the arm for commercial real estate. The increasing FDI in the segment will boost industry and also real estate, particularly with big e-commerce players expanding their presence across the nation. The logistics and warehousing sectors should maintain handsome rates of growth in 2019 as per reports.
Other factors worth keeping in mind
Commercial real estate projects are now being delivered faster and better through interfaces successfully established by PMC (project management consultancy) firms who are also playing a vital role in the growth of the sector. These firms are now playing the role of a one-point enabler when it comes to offering planning, monitoring and implementation services for projects from the initial blueprint to final delivery. This is leading to better organization of projects as far as developers are concerned. Experts forecast that more developers will look to rely on these firms for big-ticket projects in the commercial realty space.
HNIs (high net-worth individuals) are also emphasizing greatly on the commercial real estate sector owing to its higher returns and improved scope of capital appreciation alike. The growth rates have been going upwards in service and industrial sectors which will keep commercial real estate growing further. Co-working and flexible spaces will also dominate this segment along with e-commerce companies who will naturally look to scale up. Commercial real estate absorption levels are expected to be extremely healthy in 2019 and demand could surpass availability of retail and office spaces along with serviced apartments. The retail sector may grow to a whopping $1.3 trillion by the year 2020 as per studies. Private equity (PE) firms have already invested almost $300 million into the retail segment in H1 2018 and more investments are flowing into the sector as per reports.
Analysing all these trends, it can be assumed that Indian commercial real estate is on the upswing and should keep growing steadily over the next few years with the boom in co-working and retail, increasing demand for warehousing and logistics facilities, rising demand for Grade A office space and the advent of REITs. This will naturally impact the residential segment positively on account of rising demand in this category as well. Here’s to a whole new growth curve ahead!