Anshuman Magazine on how steady economic growth will help real estate

Over the past two years, the Indian real estate narrative has been shaped by resilience and constant adaptation. Despite ongoing socio-economic changes, 2021 has seen the Indian property market recover from pandemic-induced hurdles. Essentially, 2022 will be the year of faster decision-making, a quality housing boom, and workplace reconfigurations as businesses gain the confidence to resume operations.

Here are the main trends to watch in the coming years.

Residential: Attracting a new generation of buyers

The residential sector has seen strong sales momentum from 2021. While affordable and mid-segment housing have led sales, there has also been an increase in demand for luxury projects. In 2022, we can expect residential sales to experience a steady increase. Strong government support in terms of policies, low mortgage rates, reduced stamp duty, property registration fees and attractive payment schemes offered by developers will continue to drive the growth of the sector. The Real Estate Regulation Act (RERA), which ensures transparency, will enhance the accountability of real estate transactions, encouraging investment injections from NRIs.

The government’s Model Tenancy Act, which bridges the trust gap between landlords and tenants, will make it easier to close the gap between supply and demand in the rental sector. The future of residential will remain aligned with the affordable and mid-market segment. Additionally, there will be a sustained demand for larger homes in the outskirts to accommodate a luxurious lifestyle at an affordable price.

Office: rental demand is normalizing

The challenge for occupiers will be how to redefine the role of the office, accurately assess space utilization, and create agile office networks for a more dispersed workforce. Businesses can exercise greater vigilance when opting for office space, focusing on sustainability, wellness features and green leases, among others.

Office supply in India grew from 42.1 million square feet in 2020 by almost 18% year-on-year to almost 50 million square feet in 2021, leading the total office stock in the country to cross 773 million square feet.

As the economic recovery continues to gain momentum, concerns about the viability of hybrid work models would further subside. Renewals, renegotiations and adding flexibility options will likely be the priority areas for the next six months. The long-term drivers of demand for flexible space are likely to be intact, with small occupiers seeking fully furnished, cost-effective spaces and large multinationals looking to build agility into their office portfolios.

Industry and Logistics: Growth of omnichannel

Occupiers will focus on strengthening supply chains, which will lead to further growth in demand for industrial and logistics space in India. Increasing investment and adoption of smart warehousing technology can be expected to drive new logistics facilities. The demand for logistics space will be driven by the growth of e-commerce and omnichannel distribution. Third-party logistics (3PL) companies and traditional retailers will expand and improve distribution networks. As occupants focus on securing warehouse space near end-use points, they must also recognize emerging secondary-use clusters and transportation hubs.

Retail: Leveraging Leasing Activity

The retail sector saw more innovation in 2020-21 than in the previous decade. These innovations are pushing retailers to focus more on customer experiences to differentiate themselves and bring customers back to physical stores. There is also a clear need to restructure the retailer-owner relationship. Going forward, leases designed to absorb the impact of such structural disruptors while providing room for rent growth and visibility into retailer performance would be preferred by retail stakeholders. While omnichannel was already a trend before the pandemic, changing consumer shopping habits have resulted in retailers considering ubiquity as one of the pillars of their business plan. Occupants should capitalize on the favorable tenant market to lock up spaces. The brick-and-mortar operation can be expected to engage customers online and offline, integrating click-and-collect options into last-mile logistics. Landlords, in turn, should focus on rent covenants to seize the market recovery, taking a proactive approach to experience-driven retailers.

Data Center: Going mainstream, driving demand nationwide

With emerging technologies such as 5G, AI and edge computing adding to the already high demand for data centers, development will intensify in the coming years, driving growth in primary markets. established, as well as in the secondary and tertiary markets. Secondary markets will see growth as developers seek to increase capacity, focusing on affordable land in favorable climates, grid connectivity, clean and inexpensive energy sources, and favorable tax incentives.

REIT: Influx of Global Institutional Capital

Given the current market landscape and available investment opportunities, REITs will be one of the preferred investment avenues given the relatively resilient underlying cash flows. We can expect an increase in the inflow of global institutional capital and an increasing penetration of retail businesses into stable income-generating assets. 2022 will be an interesting year of change and innovation. We hope to see how an increased focus on government reforms, accountability and transparency will shape the real estate industry and the economy as a whole.

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