Will Commercial Real Estate Be The Catalyst For The Revival Of The Segment?
Pent-up consumer demand led to higher discretionary spending hence high- end malls comprised a large proportion of this activity. It is expected that the overall commercial real estate market in India should grow at a CAGR of approximately 13% over the next five years.
The commercial real estate landscape in India has transformed into a global juggernaut amidst policy reforms, institutional investments, foreign partnerships, and growth in the services sector. Government initiatives such as Make in India and wider reforms in the realty sector including RERA and GST have bolstered the sector thus greatly improving the overall ease of doing business in India.
India has been a popular commercial real estate destination for the past two decades. Driven by the IT/ITeS surge, companies including IBM, Google, Amazon, Microsoft and Apple have set up offices in the major cities. Affordable rent, ample availability of quality real estate and the presence of a massive talent pool make India an attractive destination for commercial real estate development.
To keep up with increased migration to the cities, state governments have invested heavily in infrastructure facilities and connectivity. India’s development strategy of creating commercial corridors and industrial hubs has also had a direct impact on commercial real estate growth.
The commercial sector is predicted to grow and be a catalyst for the overall real estate market due to large scale long-term investments by institutional investors. India’s robust commercial office market has instilled confidence in Investors and market fundamentals will continue to steer investments into commercial property assets. These investments have helped consolidate the segment and provided much needed formality. The commercial real estate market is still acts as a strong beneficiary of India’s economic growth.
With the advent of Real Estate Investment Trusts (REIT) in India, it is expected to boost growth in commercial segment, as developers are helped through it to reduce the burden of elevated capital costs involved in funding projects. Along with generating funds for developers, REITs also open the market to the public instead of restricting participation to only institutional investors. REITs are expected to reduce the financial deficit in the real estate sector and encourage more commercial development due to better pricing and growth opportunities. Investors look to the commercial segment due to higher returns and better capital appreciation.
One of the key growth factors of the commercial real estate sector is the vastly expanding services sector, which has increased the demand for office spaces. Developers have been enabled to provide workspaces to meet the demand through the policy reforms and initiatives such as REITs.
The demand for co-working and hybrid workspaces has been driven by an emerging start-up environment in India. While traditional office properties in well-located Grade-A buildings, IT parks and even in logistics centres have always been in high demand, the requirements of corporate tenants are now being influenced by factors such as the changing dynamics of the workforce and technological advancements. Key aspects which are being looked at here are improved efficiency, professionally-managed spaces, and ability to scale the office with respect to headcount changes. The surge of co-working spaces, especially, has altered traditional leasing, with tenants adapting to both flexible office space and fixed office concepts for core operations. Business centres and managed offices are also a growing trend that provide premium facilities including reception areas, cafeterias, and allotted parking.
Furthermore, a growing workforce and decentralisation of commercial space in the prime metros have contributed to steady growth in the commercial real estate segment across India. The onset of remote working combined with the growing industrial corridors has resulted in a major shift in the geographical spread with Tier-2 and Tier-3 cities showing an increase in their overall absorption of office and retail spaces. Accordingly, Tier-2 and Tier-3 cities across India are set to emerge as new high-growth commercial real estate markets. This trend of reverse migration and decentralisation will improve economic activity and lead to increased growth.
India’s urban planning initiatives depend heavily on smart and sustainable cities, wherein in commercial and industrial hubs will play a massive role. Smart Cities Mission, the urban renewal and retrofitting programme of Government of India aims to develop 100 cities across the country which are citizen-friendly and sustainable. This initiative will create a host of interlinked opportunities and the need for more commercial real estate development across India.
Since India has only recently transformed into a global commercial hub, the potential for more development is immense. The growth of the commercial real estate sector has a multiplier effect on the growth of the entire economy. With GDP growth of 8% predicted for the next few years, India will be one of the top growing countries of the world. India's journey towards a USD 5 trillion economy offers a multitude of opportunities for the growth of the commercial real estate market.