CBRE South Asia has released its‘Indian Realty – Charting the growth roadmap for 2022’report at CII Realty 2022 – 18th Edition of Conference Real Estate. The CBRE-CII joint report highlights key trends and projections for the Indian Real Estate sector for 2022.
Key Highlights:
*Leasing activity across real estate assets has witnessed an uptick in H1 2022 and is expected to grow further in H2 2022
*Office space absorption outlook revised upward from previous projections and is expected to touch 53-57 million sq. ft. by the end of 2022
*RE investments grew by 4% Y-o-Y in H1 2022 to $3.4 billion; Investments to touch $6 billion by the end of 2022, metros continued to account for a bulk of investments
*Retail witnessing robust recovery due to unleashing of pent-up demand and continued strength of e-commerce; Y-o-Y growth of 166% caused leasing activity to touch 1.54 million sq. ft. in H1 2022. Strong supply pipeline lined up for H2 2022.
*The residential sector is likely to witness both sales and new launches to reach a decadal peak in 2022 and cross the 200,000-mark.
*Industrial & Logistics (I&L) sector to clock a growth of ~12% on an annual basis, with leasing activity remaining range-bound at 28-32 million sq. ft. in 2022
*In H1 2022, flexible space operators accounted for over 6 million sq. ft. of office leasing activity in India. Their stock in India to cross 80 million sq. ft. by the end of 2025.
Anshuman Magazine, chairman & CEO, India, South-East Asia, Middle East & Africa, CBRE, said, “The real estate sector in India performed well in H1 2022 amid the evolving market dynamics. As economic recovery continues to gain momentum, we expect a further boost to the leasing activity across the sectors. We estimate alternative segments such as flexible space will pave the way for innovative new age RE solutions and supplement economic growth. Robust policy and regulatory environment will encourage overall infrastructure growth in the long term.”
Excerpts from the report:
Office
As markets reopened across India, enquiries and inspections picked up pace and the quantum of RFPs across cities grew. This buoyancy was particularly visible in Q2 2022, which witnessed record leasing activity – space take-up grew by 220% Y-o-Y in Q2 2022 to 18.2 million sq. ft. Overall, in H1 2022, 29.5 million sq. ft. of leasing activity was recorded, up 157% Y-o-Y. Given the growth, we expect gross absorption to rise to the 53-57-million sq. ft. range by the end of this year, a revision from our previous growth prediction.
Supply addition was recorded at 16.7 million sq. ft. in Q2 2022, a 64% increase Y-o-Y. So far this year, supply addition has crossed 26 million sq. ft., up 26% Y-o-Y. In line with the expected demand, we expect a spurt in the addition of investment-grade supply across markets in the coming quarters, causing us to revise our supply forecasts to 54-58 million sq. ft. for the entire 2022.
*Tech firms accounted for 30% of the space take-up in H1 2022, leasing by other sectors too witnessed growth on an annual basis
*Moderate rental growth of 1-5% was witnessed in several micro-markets across the major cities; select locations also witnessed rents rise by up to 6-9% in Q1 and Q2 2022
*Several occupiers are either implementing or planning to implement health & wellness and sustainability measures due to the growing prominence of adopting ESG criteria in their operations
Top trends expected to shape 2022
*Hybrid working remains the most favoured workplace policy. We, however, expect a divergence in workplace models basis individual departments, business lines and even geography.
*The adoption of activity-based working (ABW), hotdesking and targeted mobility (TM) is likely to gain momentum in the coming years
*The impact of the recession in the US and some European nations could be felt in the Indian office market as well.
Industrial & logistics
We expect the overall leasing activity in 2022 to remain range-bound at about 28-32 million sq. ft., a growth of up to 12% on an annual basis. We anticipate that this space take-up would be led by the continued expansion of 3PL, FMCG and manufacturing players against the backdrop of macro-economic recovery.
Similarly, annual supply is likely to be slightly lower than our previous estimates. However, as supply chain bottlenecks have started to ease in recent months, we expect supply addition to improve in H2 2022 and about 25-28 million sq. ft. of new warehouses to become operational during the entire year – a growth of up to 12% on an annual basis.
*Warehousing facilities with features such as high ceilings to accommodate automated stacking systems, sufficient loading / unloading zones and power back-up provisions are likely to gain more traction. Warehouses in India would typically feature a clear ceiling height of 29-33 ft. during 2017-19. More recently, completed facilities feature ceilings in the 37-42-ft. range, which allows extra vertical storage space. This can increase space efficiency by as much as 15-25%.
*Reopening of offline stores led to a short-term drop in appetite for new space from e-commerce players. However, we expect their leasing sentiments to improve over the coming quarters as consumer sentiments are improving owing to the festive season.
*Focus on operational efficiencies could lead to growth in ‘flight-to-quality’ leasing. In line with the demand, we anticipate development completions by organised players to increase.
*Further, rising transportation costs are likely to drive occupiers to continue to lease more space. E-commerce and 3PL players would thus prefer to take up space closer to consumer hubs. Moreover, 3PL occupiers dealing with cargo handling would focus on securing warehouses closer to key transportation nodes.
*Capital flow is expected to continue from both global and local players, with both greenfield and brownfield acquisitions remaining attractive. JVs / JDs / partnerships are likely to remain the key investment routes for both greenfield and brownfield acquisitions.
Top trends expected to shape the future
*Growing institutional capital in retail spaces as expansion and consolidation gain steam and new brand entities emerge.
*Brands expected to increase the number of stores and rightsized their portfolios.
*Tier II, III and now even Tier IV locations are gaining traction as developers and retailers look to leverage the spending power of these regions.
*Greater presence of education- and health-focused centres in retail clusters, leading to diversification of developer portfolio.
Residential Sector
According to the report, unprecedented sales and launch momentum has been witnessed in H1 2022. Property prices have increased across most micro-markets and across segments due to record sales and developers’ decision to pass on rising construction costs to buyers. However, monetary tightening by the RBI to tame inflation could raise financing costs.
*Appreciation in asset prices could be selective going forward: Asset prices have witnessed an uptick on account of strong momentum in sales as well as the developers’ decision to pass on the rising construction costs (on account of growing input and labour costs) to buyers.
*Unsold inventory levels could continue its southward trajectory: We are currently witnessing a fall in unsold inventory levels across most top cities of India, except a select few locations. The fall is attributed to robust sales despite steady new launches. As a result, inventory overhang at a pan-India level is at a six-year low, with average quarters to sell for projects falling from over 15 in 2017 to sub-9 levels in H1 2022.
*Better alignment needed between developers’ focus and buyers’ expectations: While developers are now increasingly focusing on larger ticket sizes (over Rs 1-2 crore), demand for units priced at less than Rs 1 crore have continued to dominate sales in H1 2022. Similarly, the share of units sized 1,500 sq. ft. and above has grown in new launches, but sales continue to be led by units sized between 500 and 1,500 sq. ft.
*Strong momentum in land acquisition to continue: We have also witnessed growing interest from both developers and investors alike in this sector. Of the nearly $5 billion deployed to acquire about 4,000 acres of land / development sites between 2020 and H1 2022, the residential sector accounted for almost 36%, the highest among all real estate sectors.
