OFFICE STOCK TO CROSS 600 MILLION SQ.FT.
CBRE South Asia Pvt. Ltd. shared the findings of its 2018 Asia Pacific Real Estate Market Outlook – India report. The report is part of a global research series released by CBRE every year, highlighting trends and dynamics across various segments in the real estate sector for the year ahead. According to the report, leasing activity in the industrial and warehousing segment is expected to touch 20 million sq.ft. in 2018, up 17% from 2017. The segment has gained significant momentum over the past few years, with leasing touching 10 million sq.ft. in 2016 and 17 million sq.ft. in 2017, signaling that the short-term disruptions caused by the implementation of the Goods and Services Tax (GST) have abated.
India’s office market too has recorded robust activity over the past two years. In 2016, total office stock crossed 500 million sq.ft. and is expected to cross 600 million sq.ft. by end-2018, a 20% jump in two years. In fact, CBRE predicts that over the next two years, occupiers are expected to spend almost USD 48 million on leasing office space in India while new commercial assets worth approximately USD 6 billion would be completed.
From an investment perspective, increasing transparency and successful implementation of several regulatory reforms is giving an impetus to the sector. In the year ahead, CBRE expects capital inflows into real estate to witness an uptick, with office, retail, industrial and land parcels leading the activity.
Anshuman Magazine, Chairman, India and South East Asia, CBRE said, “We expect 2018 to be the turnaround year for the real estate ecosystem in India. Significant infrastructure development across key cities, improvement in ease of doing business, renewed focus on attracting investments in the sector and enhanced transparency are changing the market dynamics. As significant contributor to India’s GDP, there is immense opportunity for the real estate sector to influence the growth prospects of the country.”
OFFICE MARKET IN 2018 – EMERGING TRENDS TO DRIVE THE FUTURE
- Leasing activity to remain strong – In line with 2017, office space absorption is expected to touch 40 million sq.ft. in 2018 as well, signaling sustained growth of the sector
- Office properties will remain high on investor radar, with PE and institutional firms increasingly acquiring/expanding RE portfolios to hold quality office assets
- Impact of technology on CRE – With technology impacting business, talent and real estate needs of corporates, leasing activity by tech firms may slow down slightly in 2018
- Occupier preferences to drive demand – Increased focus on cost efficiencies, technology disruptions and need for structured spaces is resulting in demand being governed by occupier preferences
- Uptick in pre-commitments to impact the market – Higher rent arbitrage, efficient portfolio evaluation and ability to defer future expansion would make pre-commitments more attractive to occupiers
- Portfolio Optimization: Efficient space utilization, flexible working and optimum hiring is expected to impact office real estate demand
- Infrastructure development to lead demand – Location decisions by occupiers would be influenced by employee preferences, including connectivity and surrounding infrastructure support
LOGISTICS MARKET IN 2018: ON THE FAST TRACK TO GROWTH
- Robust leasing activity and government push- Demand for warehousing space expected to touch 20 million sq. ft. in 2018; to be led by 3PL and e-commerce players. Benefits of government initiatives such as GST and grant of infrastructure status to provide further impetus and spur inflow of institutional capital
- Consolidation and expansion to drive demand – A unified tax regime is changing the dynamics of India’s logistics market. Smaller players are consolidating their operations while larger players are expanding their reach across key hubs
- Increase in investor interest – In the postGST era, logistics and warehousing is emerging as an attractive asset class for investors and private equity players. Recognizing their long-term potential, developers are investing in creating large, quality warehousing facilities to attract investments
- Technology to drive the market – Warehousing and logistics players are increasingly adopting IT solutions to handle inventory management. Usage of fleet management software, RFID systems and automated pallet storage is growing quickly
HOUSING MARKET IN 2018: TRANSPARENCY AND REGULATION TO ENCOURAGE INVESTMENTS
- Ready-to- move-in properties to lead demand – As the market stabilizes, housing demand would be driven by ready-to- move-in properties
- Affordable housing to be the new buzzword– Thanks to the government’s sustained focus, affordable housing is likely to set the tone for the country’s residential market in 2018
- Supply to improve – The setting up of a regulatory authority in several states has given developers the confidence to launch new projects. We expect supply to improve in the first half of 2018
- Improving buyer sentiment to boost sales – Increasing transparency is improving both consumer and investor sentiment. Coupled with subsidies on interest rates under the PMAY, housing sales are expected to go up, especially in the mid-end and affordable categories
RETAIL MARKET IN 2018: THE FUTURE IS HERE
- Approx. 6 mn sq.ft. of new supply to enter the market in 2018 – Key cities that will witness this supply addition include Bangalore and Hyderabad
- Omni-channel retail to gain traction – Realizing the benefits of offline as well as online presence, several retailers are adopting omni-retail strategies to boost their growth
- Capital inflows to increase – As quality retail supply enters the market and global retailers increasingly consider establishing their footprint in the country, investor interest in quality properties is expected to rise
- Rejuvenation of older retail developments – In order to stay relevant, several existing retail developments are undergoing renovation. In several cases, such developments are also changing their positioning to ensure they stay relevant to the catchment in which they are operating
- Product customization to become the new loyalty – The concept of customization is expected to grow, with a greater number of consumers preferring customized products and willing to pay more for them
CAPITAL MARKETS OUTLOOK: REAPING THE BENEFITS OF GOVERNMENT INITIATIVES
- Regulatory initiatives infusing positivity – RERA, GST and easing of FDI norms have improved transparency in the sector, resulting in the return of investor confidence to the market. We are witnessing increasing interest from offshore equity investors, large Indian corporates and HNIs
- Core assets to remain in focus – Availability of well-leased assets in core locations will continue to attract private equity interest.
- Incremental interest in equity – While debt has remained the preferred form of investments over the past few years, the market now has incremental appetite for equity
- Newer asset classes to emerge – While office and residential sectors remain traditional investment drivers, alternative sectors such as retail and warehousing have also come to the forefront. The implementation of GST is opening up opportunities in the country’s warehousing sector thanks to better quality, investment worthy assets being more readily available.
The year ahead looks extremely positive for the real estate sector in India. The establishment of a regulatory authority, focus on infrastructure development and better alignment between developer offerings and the actual needs of the consumer are leading to a positive transformation of India’s real estate landscape.