Having witnessed a prolonged economic slowdown, ongoing liquidity crisis, and multifarious cases of bankruptcy, 2019 was one of the toughest years for Indian real estate. However, given the overall offtake and the increase in rentals, commercial real estate seemed to be in much better shape as compared to the residential market.
The commercial market in India continued to prosper despite the gloomy economic and real estate market scenario in 2019. Large-scale investments by institutional investors and listing of the first Real Estate Investment Trust (REIT) paved the way for the growth of commercial realty during the year. The segment reported a 21 percent YoY growth during the first half of the year, with net absorption touching nearly 22 million sq ft in the given period. As per further estimates, the segment reported over 33 million sq ft of net absorption during Jan-Sep 2019, surpassing the performance of 2017 and 2018. The country also witnessed a surge of 42 percent in new office space addition during the studied period and crossed the benchmark of 36 million sq ft in 2018 (Source: JLL). Out of all the major markets in India, Hyderabad topped the charts in terms of net absorption and new project completions.
In addition to government initiatives such as Make in India, increased number of occupiers in the tech space and the rise of co-working players further helped the sector reach historic levels. Moreover, enhanced transparency and competency in the market post the introduction of the Real Estate (Regulation and Development) Act (RERA) and Goods and Services Tax (GST) led to increased Foreign Direct Investments (FDI) in the commercial segment.
In sync with demand, the supply, too, increased by 31 percent, YoY reaching up to 23.9 million sq ft in H1 2019 (Source: Knight Frank). As per the estimates provided by CBRE, the office take-up reached 47 million sq ft in the first nine months of 2019 as against the corresponding period in 2018. Leasing activity stood at nearly 15.4 million sq ft during the quarter ending September 2019, marking an increase of 23 percent on an annual basis. The transactions were driven majorly by IT/ITeS companies, start-ups and large consulting firms. Cities in the South continued to outperform with respect to commercial leasing. While Bangalore ruled the roost with maximum leasing transactions (close to 31 percent), commercial activities in Hyderabad doubled during the year. Chennai, too, reported a jump of 60 percent in office space leasing. Co-working emerged as a popular trend, accounting for 25 percent of the office demand. Other than this, asset classes such as student housing and logistics and warehousing, too, gained significant traction.
Major commercial deals in 2019:
- Google leased 4.5 lakh sq ft space in Gurgaon
- Nesco Limited provided over 6 lakh sq ft prime office space in Mumbai to corporates, including HERE Technologies and IndiaFirst Life Insurance
- Global investment bank Morgan Stanley picked nearly 8 lakh sq ft space in Goregaon, Mumbai
- Blackstone Group bought One BKC building in Mumbai for Rs 2,500 crore
- Co-working operator Skootr took 15,000 sq ft office space in Gurgaon from DLF Hines
- Ascendas leased 6.5 lakh sq ft area in IT-SEZ Gurgaon
- Wells Fargo announced office space leasing up to 8 lakh sq ft in Bangalore
- Goldman Sachs invested Rs 500 crore in commercial project Ozone Techno Park
Sharing details about the performance of commercial realty in 2019, Sparsh Khandelwal, Founder, Stylework, avers, “Office space absorption crossed an all-time high across nine leading cities and reported supply influx of 35 million sq ft, witnessing a hike of 14-15 percent, YoY. The co-working segment has specifically performed well, reporting a growth of 42 percent over 2018. With the introduction of REITs, the investors are looking at real estate with renewed interest.” Though the sales remained robust, the oversupply of commercial units remained a cause of concern for the cities.
Expectations for 2020
With the Government taking initiatives to increase the consumption of real estate, the commercial segment is likely to grow further in the times to come. Moreover, office leasing is expected to remain stable, backed by corporates looking to expand or consolidate their operations in India. Similar to the year 2019, co-working, student housing, and REITs will keep driving growth in the commercial segment.
As opined by Harinder Singh Hora, Chairman, Realistic Realtors, “The commercial segment has been the preferred segment for the institutional investors from some time now. With the astonishing success of the first REIT, the interest in the segment is likely to continue further. The Blackstone Group-backed Embassy Office Parks REIT, which got listed on the bourses in March, has provided decent returns to the investors and has successfully opened up a new investment avenue. It is expected that more and more companies are likely to take this route in 2020.”
Sharing his outlook for 2020 and the years ahead, Abhishek Bansal, Executive Director, Pacific Group, avers, “Besides the office arena, the Indian retail industry is also on a high. This particular segment is expected to grow from USD 790 billion in FY19 to USD 1,400 billion by 2024. Shopping malls are likely to gain the most from it.”
Other than government initiatives, commercial real estate in India has also benefitted from the growing warehousing and logistics sector. Burgeoning workforce, along with decentralisation of commercial spaces in prime metros, further helped the market flourish in 2019. While new investment hotspots are expected to emerge in 2020; smart offices, dynamic spaces, and Biophilic Designs are some of the designing trends that will gain prominence in the New Year.