Real estate in general and its future growth in particular is defined by its demand drivers. It is relatively easier to forecast the demand drivers in the residential sector. Reason being that the economic activities indicate the migration of the workforce and hence inherent need for housing. However, to forecast the emerging economic activity, both sector wise and region wise, is more often than not guesstimate, finds Track2Realty.
Emerging demand drivers of commercial real estate are today the big talking point of Indian real estate. After all, it is where the big money, including but not limited to foreign funds, is expected to pour in. Analysts are hence evaluating the next demand drivers of commercial property. There are two key aspects that could indicate the next demand driver of commercial property – one is business wise and the other is region wise.
A recent report by Savills India that focuses on tech towns of the future highlights that the next demand drivers would be coming from Tier III cities. Savills India’s Research has conducted a comprehensive statistical analysis and presented these upcoming locations as clusters namely ‘challenger cities’ and ‘emerging cities’.
Some of the key trends in demand forecasting of commercial real estate are:
IT-BPM Sector to expand to Tier-III towns
The Information Technology-Business Process Management (IT-BPM) sector has been absorbing large office spaces through the last decade and a half. Its current share is estimated at more than 50% of the total office space leased in the last 5 years
As its growth continues, a cumulative space uptake of 80-120 mn sq. ft. in grade A office buildings, including coworking spaces, can be expected over the next five years
The IT-BPM sector is expected to clock a cumulative leasing of 100 mn. sq.ft. by 2026
Leader cities are already established IT-BPM hotspots and have high availability of skilled talent and robust supporting infrastructure
Challenger cities enjoy a symbiotic association with leader cities and are already witnessing significant IT-BPM activity
Emerging cities on the other hand are expected to be the next big potential hotspots in the medium to long term
Tier-II and III cities are likely to feature prominently in a world finely balanced in terms of employee safety and wellness, return to offices in calibrated measures, increased adoption of remote work through enterprise-level digital transformation and cost benefit analysis in real estate portfolio allocations
The question is which are the segments that would emerge as the demand drivers. The industry opinion is divided and yet tilted towards logistics & warehousing.
Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers believes that with occupiers returning to the office, gross office absorption during the first quarter of 2022 rose to 13 mn sq ft, a three-fold increase year on year.
“Demand for Industrial and warehousing spaces also witnessed an 11% increase during the quarter, at 6.2 mn sq ft led by third-party logistics. The demand for office and industrial space will continue to remain strong throughout the year. Investment confidence also remains intact as investors continue to bet on traditional assets as the economy recovers,” says Nayar.
Ashish Narain Agarwal, Founder & CEO, PropertyPistol.com points out that commercial real estate has been picking up since corporates and organizations are welcoming employees back into the workplaces after the COVID-19 induced pandemic.
“Commercial real estate is also being driven by an upbeat in sectors like IT, e-commerce, logistics, data centers, etc. With investment in commercial real estate being a preferred option by a lot of investors, this segment is definitely going strong and the momentum will be further continued,” says Agarwal.
Amit Goenka, MD and CEO at Nisus Finance vetoes in favour of life sciences, data centres, E commerce, as the main drivers in a post pandemic world. “Leasing demand is strong in the major metros and almost 30 million sft is expected to get absorbed this year,” says Goenka.
A closer look at the commercial real estate indicates some tectonic shift in the segment. The upcoming industrial corridors and post pandemic shift in the way Indians work would have its impact on the commercial property. The first major shift would be in terms of the geographical spread and Tier I cities would no longer be the major contributor in absorption of office or retail spaces.
Even in the Tier I cities there is a shift from over-crowded CBDs (Central Business Districts) to the EBDs (Emerging Business Districts). The shift of offices from Nariman Point in Mumbai to the Bandra Kurla Complex (BKC) is a case in point. Some of the Tier II and III cities connected with the upcoming industrial corridors would be the magnet of investments.
In terms of the segment, the emerging economy clearly indicates that plain vanilla office spaces and retail spaces would no longer attract the lions’ share of investment. The hybrid model of office-cum-retail would be the new experiment ahead.
But what would actually draw the big ticket investments would be the emerging segments of commercial real estate. For example, the online retail has already gained ground in India and there is a deficit of warehousing. Logistics and warehousing would hence attract sizable investment ahead.
Data Center is one segment that is expected to touch new heights in the country. Already, in the last few years data center projects have been witness to an uptick and a lot of global players have entered. Tokyo-headquartered NTT has committed to an investment of $2 billion to set up six data centers in India.
In a nutshell, demand drivers of commercial property in India have spread out beyond the traditional centers; there is more democratic growth on the landscape. The key demand drivers are not traditional segments but emerging segments that demand much deeper investments.
Ravi Sinha
#RaviTrack2Media
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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