While residential real estate can be predicted due
to the frequent transactions and steady trends, the Commercial real estate
market is a bit tricky to analyze. Moreover, the hybrid-work model has affected
the sample size to gather substantial trends.
Nevertheless, the commercial property has continued
on a trajectory owing to the following factors–
An optimistic view
Net
absorption is an important factor to determine the supply and demand of
commercial units. Basically, consider a particular area: the end summation of
the space evacuated by the company/tenants in that area (at a certain time
period) and then occupying a different space in the area will give you the “net absorption of that commercial area”.
According to
the Business Standard Report–
During the
time frame of a QoQ(Oct-Dec’2021), the Indian Office Sector observed a net
absorption of 11.56 million sq.ft. This was the peak record considering the
last eight quarters and appreciated by 86% QoQ.
Compared
to the yearly performance, this parameter was up by 26% YoY for the half-yearly
frame of Jul-Dec’2021.
Based
on this, Mordor Intelligence has reported the estimated gross absorption by the
end of 2022 to be 700 million sq.ft. SMEs have been hard carrying this demand
in Pune, Bangalore, and Chennai, specifically from electronic component makers,
followed by the auto sector leasing the most space in these cities.
Overall,
the forecasted appreciation of commercial real estate in India is set to reach
a CAGR of 13% from 2022-2027.
Future of
Retail and Hospitality spaces
It is fair to
say that 2021 was the revival period for the sharp decline in 2020:
For
comparison, transaction volumes in Q2’2021 observed a rise of 39% YoY as
opposed to Q2’2020.
More real estate developers are focusing
on completing their projects when the market displays agility. Due to this 2021
was a tumultuous period in the supply-transactions chain. However, the beginning of 2022 has brought a
positive light to retail spaces with the relaxation of lockdown and
vaccinations, again gaining momentum in the demand cycle.
Other aspect of the commercial estate is
that India is outreaching global standards in industries from mere service
providers to forming research and marketing companies. This has attracted
international attention and FDI interests in Indian Corporate thus increasing
demand for commercial space that is also integrated with retail and
hospitality.
Why it is the
right time to buy?
The
major driving force in commercial property is the traction in leasing by
companies who are keen to adapt the hybrid-working model. ANAROCK Group
consultants agree with the start of the bullish cycle with increased leasing
activities across the top 7 cities in India.
Evaluating
the commercial future through REITs which have shown a general uptick in stock
exchanges; where the Real estate index has outperformed Sensex with the start
of 2022. REITs are proven beneficial for both investors and developers, acting
more like a contingency plan to stay away from huge debts.
Judging
by the REIT performance, it is implied that the commercial space is gaining
momentum, with a projected rental yield of 6-7% (source: Financial Express).
This is the right time to enter this market as an investor and end-user.
Best
Locations for Commercial Real estate
Metros
shall anytime remain the preferred commercial zones. However, with the outreach
toward other urban cities and rapid infrastructural development, Pune, Chennai,
Hyderabad, Ahmedabad, are some of the competing cities.
As
mentioned previously, Pune has maintained solid traction even during the
pandemic stages. It observed a 2X increase in space from January and June 2020,
with a supply of 1.28 million sq.ft from 0.6 million sq.ft.
Pune has extended
infrastructure development, expanded the IT clusters, and peaked an interstate
with foreign investors. Hinjewadi IT park exemplifies the success of commercial
space in PCMC. Gera’s Imperium Gateway is one of the new projects in Pune that offers
shops and office spaces.
However, a pleasant
surprise has emerged with the high demand for commercial property in Goa.
Hospitality, retail, co-working spaces, and overall affordability have led to
this emergence. Moreover, digitization has allowed SMEs and businesses to scale
from any place. Kadamba Plateau in Goa is a famous commercial spot, a conducive
environment for retail spaces. Gera’s Imperium Premio is a prominent project,
offering commercial
property for sale in Goa.
In Conclusion: the Indian Commercial real
estate market is showing affirmation in an uptick in the coming months and
promising high yield within the next 5-10 years.
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