Future of commercial real estate

Authored by Arnab Ghosh, Director, Synergy Property Development Services The commercial real estate sector in India is predicted to grow in the coming years; this upward trend specific to the sector has been further accelerated by large scale investments by institutional investors. These have helped consolidate the sector and bring in much needed order to the field. The commercial real estate market remains a strong beneficiary of India’s economic growth. The commercial segment has been greatly boosted by government initiatives such as Make in India and other reforms in the realty sector such as the introduction of Real Estate Regulatory Authority (RERA) and GST. Despite their initial troubles, developers and buyers have now hailed the move due to the resulting transparency and competence of the sector which has attracted increasing amounts of foreign direct investments (FDI) in commercial estate. According to a survey by Colliers International, investors are confident about India’s robust commercial office market in 2019 and firm market fundamentals will continue to steer investments into commercial property assets. Let’s look at some of the upcoming trends in the Indian commercial real estate sector – The advent of REITs: The introduction of Real Estate Investment Trusts or REITs in India is bound to reduce the financial deficit in the real estate sector. Apart from generating funds for builders, REITs also opens the market for the common man and doesn’t limit the sector to large institutionalised investors. With respect to the commercial real estate segment, REITs are expected to increase demand in sectors such as manufacturing and IT related institutions, due to better pricing and growth opportunities. The move is expected to fuel further growth and development in the overall real estate market in India, as they help developers reduce the stress of elevated capital costs involved in funding projects.   Co-working or Hybrid workspaces: From rapid urbanisation to a growing start up environment, a host of factors have driven the demand for co-working or hybrid workspaces, one of the key aspects of the commercial real estate sector in India. This growth curve is expected to continue in 2019 fuelled by advantages of using co-working or hybrid workspaces. The reduced costs especially in terms of rent and the flexible work environment have attracted several corporates and start-ups to adopt the model.   Rising demand for Indian office markets: The ever-expanding service sector has increased the demand for office spaces, one of the biggest drivers of the commercial real estate sector in India. Major reforms coupled with initiatives such as REITs have pushed developers to provide good quality work spaces in the service sector in order to adequately meet the demand. As per the projections from Colliers International, the annual average for fresh demand for office space across India will be 46 million sq. ft. till 2021.   Expansion of the warehousing and logistics sector: The commercial real estate sector in India has greatly benefitted from the expanding warehousing and logistics sector. The growing rates of foreign direct investments have significantly boosted the industrial sector, especially large players in the e-commerce markets with expanding businesses. If the current macroeconomic factors as well as policy reforms are maintained, the warehouse and logistics sectors is expected to maintain current growth rates in 2019 according to the CBRE reports. With the booming commercial real estate sector, project management consultancy (PMC) firms are increasingly playing a greater role in the delivery of commercial real estate projects. This is because they act as a single point of contact providing synchronised services in planning, supervising and monitoring the progress of projects right from conception to their delivery. There is an added advantage of not relying on multiple isolated service providers, which increases the expenses involved, and does not provide uniformity in the services provided. As a result, the tendency of developers to rely on PMCs for large scale commercial projects is a trend that will be seen in the future as well. The commercial real estate sector is expected to propel the real estate market, especially due to the shifting attentions of the high net worth individual (HNI) segment to the sector due to higher returns and better capital appreciation. The upward growth rate in the industrial and service sector has also contributed to the development of the commercial real estate sector and the future of the segment looks extremely promising.