Despite the continued cyclical upswings and downswings of the COVID-19 pandemic, the Indian real estate sector has remained largely resilient. It is now showing signs of revival, on the back of India’s strong position as a driver of the global economy as well as promising growth projections across segments such as office, I&L, residential and alternative real estate assets.
In 2022, CBRE expects the sector to leverage the government’s continued focus on infrastructure development and industrial growth, with segments such as DC, logistics and manufacturing being the focal nodes. ESG is expected to transcend sectoral boundaries and become central to business interests as investors, developers and occupiers imbibe health & wellness into their strategies while improving energy efficiencies and reducing their carbon footprint.
According to Anshuman Magazine, Chairman & CEO India, South East Asia, Middle East & Africa,CBRE, the second wave of the pandemic was a blip on the Indian economy and to the real estate sector. Today, real estate has come a long way.Leasing activity across all sectors and segments has witnessed an uptick in the past 6 months and this growth is expected to continue well into 2022. In fact, a few sunrise sectors such as I&L are expected to surpass pre-pandemic levels as well in terms of leasing as well as supply addition. The India market for alternate segments such as DCs, life sciences, etc. Is likely to mature further, enabling investors to diversify their portfolios as well as provide more investment opportunities.
Post-pandemic structural changes are likely to accelerate further. For instance, the focus on ESG is expected to accentuate across all sectors, even as tech such as AI and AR / VR finds more takers in the sector. Business resilience and future investments are likely to see a positive impact on the overall segment.
Gross absorption in office space is expected to touch 45-47 million sq. ft. in 2022, a growth of about 13-14% from 2021. Technology firms would continue to dominate leasing in 2022 while flexible space operators, BFSI, engineering & manufacturing and life sciences segment are expected to contribute to the growth in office space take-up significantly. Similar to 2021, Bangalore, Hyderabad and Delhi-NCR are expected to continue to drive transaction activity in 2022.
- In 2022, around 51-53 msf of new office space is expected to become operational ,up by about 4-5% on an annual basis.
- Physical offices are here to stay, along with hybrid working, while occupier appetite for office expansion is strengthening.
- The ‘5G+’ workplace: An unprecedented generational convergence is likely by 2030: for the first time in history, four generations would occupy the workplace simultaneously.
- Proptech to transform CRE Six technologies that will dominate the real estate sector in 2022 include SaaS, Artificial Intelligence, Internet of Things, Robotic Process Automation, Virtual / Augmented Reality, and Blockchain.
Industrial & Logistics
Leasing activity is expected to remain strong in 2022,touching 35-37 msf, a growth of more than 20 percent on an annual basis. The continued expansion of e-commerce and 3PL firms against the backdrop of macro-economic recovery and growing online retail penetration is expected to drive the sector. Further, next-gen logistics facilities are likely to dominate upcoming supply pipeline as warehouses grow taller.
- Warehousing space take-up to rise Continued upgradation / expansion opportunities in tier-I cities, new market penetration in lower tier cities and the extension of local distribution networks in emerging logistics hubs will aid this growth.
- Supply to keep pace with absorption: CBRE expects about 32-34 million sq. ft. of new warehouse space to become operational in 2022. The regionalisation of supply chains across APAC is expected to benefit alternative manufacturing hubs including India.
- Rental growth: Hyderabad Mumbai, Ahmedabad, Chennai and Pune registered rental growth in the range of 10-20 percent and cities such as Kolkata, Bangalore and Delhi- NCR recorded a 2-7 percent yoy increase. Rental growth is likely to continue across cities in 2022, especially in investment-grade, tech-enhanced and strategically located assets.
- Rise of Cold Storage (CS) facilities: CBRE Research expects CS capacity and stock in India to double over 2019-23 to touch 70-75 million tonnes and 1.4-1.5 billion sq. ft. respectively. E-grocery, food manufacturing and delivery sectors and life sciences will catalyse the growth
Although retail recovery was hampered by Omicron, the pent-up demand would spur activity across all consumption categories.
- Expansionary demand to go up : Demand from categories such as QSRs, supermarkets, electronics and consumer durables is expected to sustain.
- Multifunctional stores :Omnichannel retail and hybrids between digital and bricks and mortar will become more visible. Stores may actually serve as a solution for supply chain issues by covering the ‘final 50 feet’ which is the most expensive leg of the logistics process.
- Sharper focus on experience: It would become imperative for retailers and shopping centres to offer shoppers an experiential incentive to visit brick-and-mortar stores. Innovations such as thematic stores, promotional events, expanded display areas, novel F&B concepts will be key drivers.
Continued policy push, a revival in economic activity coupled with a low mortgage rate regime are some of the key factors driving residential growth. The strong sales momentum witnessed post Q3 2020 has provided developers an incentive to launch new projects and new phases in existing projects.
- Capital values anticipated to rise: Capital values across both the mid-end and high-end segments are expected to witness an uptick in 2022 due to factors such as robust sales momentum and rising input material cost that could force developers to pass on the increase to homebuyers. However, asset pricing trends are expected to remain divergent across sub-segment types and within cities as the level of unsold inventory and growth in sales are expected to dictate capital value movement.
- Mid end and affordable segments to drive momentum: Traction is expected in premium / luxury housing categories while a steady demand for housing units priced between INR 45 lakh to INR 1.0 crore is likely to push up the demand for affordable and mid-end segments in 2022.
- Focus on larger unit sizes and plotted developments: With the elongated period of remote working and home-schooling likely to continue, factors such as larger homes, plotted developments with flexibility on configurations and ancillary amenities are likely to remain key focus areas for developers.
- Product planning and alignment with changing consumer demands : There will be greater emphasis on quality property management as well as access to facilities such as healthcare and daycare centres.
- Rental housing opportunities : The passage of the Model Tenancy Act (MTA) can be a gamechanger for the Indian rental housing segment.
Investment activity is expected to witness an uptick in 2022, with investors likely preferring the opportunistic route. Alternate investment funds are expected to emerge stronger going forward.
- Investments to reach near pre-pandemic levels: Total investments in 2022 are expected to rise by about 5-10%, to reach around the pre-pandemic levels of 2019.
- Metros to lead investments in office,retail : Mumbai, Delhi-NCR, Hyderabad and Bangalore are expected to remain on investors’ radar in 2022, with major focus expected on office, development sites and I&L assets. With the emergence of tier-II cities as the new engines of warehousing demand, we are likely to witness investor demand for such spaces in these locations.
- Investments in greenfield assets to grow: Since there are limited high quality / core assets that are up for sale in the market, we could see greater activity via the opportunistic route as investors rebalance risk and return in the post-pandemic era.
- AIFs to get a stronger hold :As the focus of some of the prominent HFCs and NBFCs turns away from corporate loan books to retail loan books with an aim to strengthen their balance sheets, AIFs are expected to become a major source of lending to the CRE sector going forward.
- Flexible spaces:Flexible spaces would continue to gain prominence in occupiers’ portfolios, with new ‘core+flex’ strategies emerging amidst portfolio expansion and hybrid working.
- DCs: CBRE anticipates a rising number of ‘strategic’ IT infrastructure outsourcing deals i.e., corporates moving from captive to colocation DCs in 2022.
- Student accommodations / co-living:Strong revival in this activity is expected with the reopening of universities and workplaces.
- REITs:Operational and financial performance will witness strong recovery; additional REITs are expected to come up in the office sector.
· Life sciences: A paradigm shift in life sciences real estate dynamics was recorded post the pandemic, leading to their share of office leasing to rise in 2021 – a trend that is expected to continue in 2022