Realty to Emerge Stronger

 Badal Yagnik, Chief Executive Officer, Colliers India.

After a  cautious start , 2023 turned out  to be one of the best-performing years in real estate sector across asset classes. Building on the strong foundation, 2024 is likely to be a year of redemption where real estate will reshape, restructure and realign on a stronger footing.

Office Outlook : Towards Stability & Consolidation 

If 2023 has been a year of successfully overcoming the initial jitters, 2024 is expected to be the year of consolidation upon strong foundations, reflecting stability in India’s office market. Occupier needs will continue to evolve and market offerings will continuously realign themselves. Strong growth prospects in Indian economy and healthy domestic outlook will keep occupier as well as developer confidence intact. Demand- supply equilibrium will keep vacancy levels rangebound lending room for rental upside.

• Portfolio diversification – “Core + Flex” strategy –Considering flexibility & scalability benefits offered by shared workspaces, the “Core + Flex” model will continue to be preferred by occupiers. Moreover, a steady adoption of intra and intercity “Hub and Spoke” models, will accentuate the trend of occupiers incorporating flex spaces in their real estate portfolio. Developers and operators too will increase their flex offerings, increasing the flex penetration in Grade A office stock closer to 10%, up from less than 5% before the pandemic.

• Secondary, Peripheral and Tier II/III markets to grow – With greater adoption of ‘Hub and spoke’ models and rental arbitrage coming into play, secondary and peripheral business districts are likely to remain office market hotspots across major cities. Occupiers will push for establishing their core offices in CBDs and at the same time seek satellite offices across secondary and peripheral markets. Improving connectivity, enhanced social & physical infrastructure and proximity to residential catchment areas will make peripheral micro markets particularly favourable for both conventional and shared workspaces. Simultaneously, select Tier II cities are primed for heightened office activity fuelled by talent availability, rise of hybrid work culture, infrastructure enhancements, and improving Grade A office supply.

•     Technology and GCC demand to bounce back – With expectations of receding impact of global economic headwinds, GCCs will resume real estate decisions in India. Owing to its talent pool, relatively lower office rentals and supportive legal framework, India will continue to remain a preferred destination for global players looking to setup their capability centers. Leading international tech companies will also expedite incremental space take-up in major office markets of the country. Meanwhile, domestic occupiers from sectors such as Engineering & Manufacturing, BFSI, Consulting, Healthcare, Edutech & E-commerce etc will continue to diversify the leasing landscape.

•     SEZs to see heigntened occupier activity : Recent amendments in SEZ regulations allowing floor-wise denotification, are expected to boost leasing across SEZs, further improving occupancy levels. The amendment will not only facilitate the expansion of companies’ office spaces, but also extend the benefits of SEZ areas to Non-SEZ entities. The new regulations will diversify the SEZ tenant base by allowing occupiers from both export and domestic businesses. Overall SEZ vacancy levels  thus are likely to get reduced from current 20% levels to 10-15% in the next few years.

• Focus on sustainability–Sustainability will increasingly take centre stage in Indian commercial real estate. A sizeable portion of upcoming supply will be green certified right from Day-1 of operation – in a way reflecting increasing occupier preference of sustainable elements including green-leases. Developers too are likely to benefit from upside in occupancy levels and rentals of green certified developments. Retrofitting of older assets and E-upgrade of existing developments will pick up pace, reducing the carbon footprint and improving the energy efficacy of India office ecosystem. Interestingly, ESG due diligence and assessments will increasingly be the norm in office market.

Residential Outlook:  Rise in Premium Housing Amidst Moderation 

Although the momentum in residential real estate is likely to continue into 2024, we might witness the base effect coming into play and thus growth in sales, launches and prices will remain moderate. With adequate inventory and uptick in ready to occupy property supply, the residential market is likely to be evenly balanced between homebuyers and developers. Developers with a track record of timely execution of projects will continue to see good traction in the market.·

 Making most of technology   Home buying experience will increasingly involve seamless integration of artificial intelligence, machine learning and cloud computing. Homebuyers across age-groups will increasingly prefer smart homes, virtual tours, and digital transactions. Evolving construction technologies and environment-friendly practices are anticipated to provide further credibility to sustainable housing soon. Premium developments of reputed developers are likely to see technology playing a key role in delivering personalised services that improve comfort. Advanced technologies like AI and chatbots will be used for services like virtual concierge services, biometric authentication, higher security and thus provide an upscale living experience.

•     Surge  in  premium housing – Demand for second homes, vacation homes and plotted developments is likely to remain unabated in 2024. Given the envisaged momentum in high-end segment, companies with related expertise in hotels and luxury segment are expected to increasingly foray into the premium residential market of Tier I cities. Nevertheless, affordable, and mid-segment housing will continue to drive volumes. However, a perceptible increase in share of luxury housing in overall residential market sales is on cards for 2024.
• Infrastructure to shape homebuying behaviour- With new airports, metro routes and arterial roads, most major Indian cities are undergoing a massive infrastructure upgrade. The upcoming infrastructure facelift will act as a catalyst for residential activity in the influence zones. Catchment areas along project corridors will witness significant capital value appreciation, attracting investors and end-users alike. As infrastructure projects get completed throughout 2024, peripheral areas will become integrated with central and suburban areas, resulting in homogenisation of activity across key residential pockets of respective cities.·

 Scaling new frontiers –    Owing to untapped potential and increased preference for comprehensive offerings in gated communities of tier II and III markets, organised residential real estate is well poised to embark on the next growth phase in markets like Vadodara, Nashik, Lucknow, Jaipur, Chandigarh, Coimbatore, Mysore, Kochi, Indore, Bhubaneshwar, Guwahati etc. Investors will increasingly look for residential investments in these cities which have a higher upside potential compared to Tier I cities. Developers are likely to infuse quality supply in such emerging markets and peripheral locations of metro cities as well. ·

Co-living and home rentals to stabilize- The pandemic ushered in an era of remote-work & study and thus a reverse migration from bigger to smaller cities. However, by 2023, normalcy with respect to having a physical presence has been almost completely achieved. Most organisations have mandated at least a 2-3 day/week physical presence in offices. With the migration back to bigger cities effectively being completed, 2024 is likely to see rationalisation in terms of rental values increase. 2022 and 2023 witnessed rental values in certain micro markets go up by 30-40% YoY. Such steep increase in housing rentals including monthly charges in co-living properties is expected to rationalise in 2024. The moderation will be more prominent in tech hubs like Bengaluru, Hyderabad and Pune.

Industrial & Warehousing : Sustainability and Tech Boost

2024 is likely to see continuation of bright prospects, serving as accelerated growth catalysts for the industrial & warehousing sector. India remains the fastest-growing major economy, harbouring immense potential for real estate demand in the sector. Backed by rising capital investments, manufacturing output and supportive government policies, the industrial & warehousing sector is expected to grow from strength to strength in India. Furthermore, technology related aspects are going to be more pervasive throughout. Going forward, AI and IoT enabled monitoring and proliferation of smart & automated warehouses will redefine the industrial & warehousing sector.·

Government policy thrust to push demand – Steadfast implementation of existing government programmes and projects such as Make in India, Gati Shakti, Multi-Modal Logistics Parks (MMLP), Performance Linked Incentives (PLI) scheme etc. will continue to provide a fillip to the industrial & warehousing ecosystem in the country. Key projects including SagarMala project and industrial corridors will prove to be major enabling factors in the growth story of industrial sector and translate into heightened demand for warehousing spaces across tier I and II cities of the country.·

Q-commerce to fuel demand for micro-warehouses- With increasing demand for quick deliveries Q-commerce will further pick up pace, leading to heightened demand for micro-warehouses and in-city warehousing. Rise in number of micro-warehouses will lead to higher scale of operations, which in turn would lead to higher demand for hub warehouses.

EVs likely to propel new demand- Rapid growth in EVs and in turn battery manufacturing, is likely to create significant demand for land for setting up giga factories. EV related tax incentives and various incentives provided for battery manufacturing would boost production as well as real estate demand in the segment.·

Consolidation on the cards– With prominent domestic real estate players and global investors looking for significant expansion in the industrial & warehousing space, the sector is likely to witness increased consolidation. This is likely to lead to increased institutionalization in the sector and bring in a combination of global and local expertise with respect to advanced technologies and operational efficiencies. Institutionalization of the sector is bound to pave way for potential warehousing REITs in the future.·

Increased demand for green warehouses– In the next few years, there will be increased preference for sustainable and green certified warehousing spaces, and logistic parks with energy efficient systems, adaptive climate control solutions and efficient layouts. Moreover, investment considerations are also likely to factor adoption of sustainable elements more stringently.