According to a CBRE Report, India Real Estate Market Will Continue to Grow in 2022

Indian Real Estate Market - Onwards & Upwards

As demand for commercial, retail, and residential real estate in India grows, the forecast for the entire Indian real estate market is positive, and government changes are expected to stimulate the market.

CBRE South Asia launched its 'Indian Realty – Charting the Growth Roadmap for 2022' study during the 18th Edition of the CII Realty 2022 Conference Real Estate. The joint CBRE-CII analysis outlines significant trends and forecasts for the Indian real estate market in 2022.

Key Features:

*Leasing activity across all real estate assets increased in H1 2022 and is anticipated to increase further in H2 2022.

*Office space absorption is predicted to reach 53-57 million sq. ft. by the end of 2022, which is an upward revision from prior forecasts.

*RE investments climbed by 4% year-over-year to $3.4 billion in the first half of 2022; investments will reach $6 billion by the end of 2022, with metros continuing to account for the majority of investments.

*Retail is seeing a strong rebound owing to the release of pent-up demand and the sustained strength of e-commerce; leasing activity reached 1.54 million square feet in the first half of 2022, a year-over-year increase of 166%. A robust supply pipeline is scheduled for H2 2022.

*Sales and new launches in the residential sector are projected to hit a decade-high in 2022 and surpass the 200,000 mark.

*Industrial & Logistics (I&L) sector will expand by 12% annually, with leasing activity continuing between 28 and 32 million square feet in 2022.

Flexible space operators accounted for about 6 million square feet of office leasing activity in India during the first half of 2022. Their inventory in India will exceed 80 million square feet by the end of 2025.

Anshuman Magazine, chairman and chief executive officer of CBRE for India, South-East Asia, the Middle East and Africa, said, "The Indian real estate industry fared well in the first half of 2022 despite the changing market circumstances. As the economic recovery gains speed, we anticipate an increase in leasing activity across all industries. We anticipate that alternative categories, such as flexible space, will pave the way for creative new-age RE solutions and contribute to economic growth. Long-term infrastructure expansion will be facilitated by a robust legislative and regulatory framework.

Citations from the report:

Office

As markets throughout India reopened, inquiries and inspections accelerated, and the number of RFPs across cities increased. This optimism was especially evident in the second quarter of 2022, which saw record leasing activity — space take-up increased by 220% year-over-year to 18.2 million square feet. In the first half of 2022, a total of 29.5 million square feet of lease activity was reported, increasing 157% year-over-year. Given the increases, we now anticipate that gross absorption will increase to the range of 53-57 million square feet by the end of this year, a change from our earlier growth forecast.

The addition of 16.7 million square feet was reported in the second quarter of 2022, a 64% increase year-over-year. This year, supply additions have surpassed 26 million square feet, a 26% increase year-over-year. In accordance with anticipated demand, we anticipate a surge in the addition of investment-grade supply across all markets in the coming quarters, prompting us to modify our supply projections for 2022 to 54-58 million square feet.

*In the first half of 2022, 30% of the space taken up was by technology companies, while leasing by other industries also increased annually.

During the first and second quarters of 2022, a number of micro-markets in the nation's largest cities had a moderate increase in rental rates, ranging from 1% to 5%.

Due to the increasing prevalence of adopting ESG criteria in their operations, a number of occupants are implementing or intending to implement health & wellness and sustainability initiatives.

Leading trends anticipated to define 2022

*Hybrid work is still the most popular workplace strategy. We anticipate though that workplace arrangements will vary by department, business line, and even location.

In the future years, activity-based working (ABW), hotdesking, and targeted mobility (TM) are anticipated to gain traction.

The Indian office market may feel the effects of the recession in the United States and several European countries.

Industrial & logistics

We anticipate that the total leasing activity in 2022 will stay between 28 and 32 million square feet, increasing by up to 12 percent annually. We predict that the sustained development of 3PL, FMCG, and manufacturing firms, against the background of macroeconomic recovery, will drive this space occupancy.

Likewise, the yearly supply is expected to be somewhat lower than our earlier projections. However, since supply chain constraints have begun to alleviate in recent months, we anticipate that supply addition will improve in the second half of 2022 and that 25-28 million square feet of new warehouses will become operational throughout the whole year – an increase of up to 12 percent annually.

Warehouses with characteristics such as high ceilings to support automated stacking systems, adequate loading / unloading zones, and power backup arrangements are anticipated to gain popularity. During 2017-19, India's warehouses will normally have a clear ceiling height between 29 and 33 feet. Recent buildings have ceiling heights between 37 and 42 feet, allowing for more vertical storage space. This may enhance space utilisation by 15 to 25%.

*The reopening of brick-and-mortar shops resulted in a temporary decrease in demand for additional space among e-commerce companies. Nevertheless, we anticipate that their leasing attitudes will improve in the next quarters, since consumer sentiments are rising due to the holiday season.

Focusing on operational efficiency may result in the expansion of "flight-to-quality" leasing. In accordance with the demand, we expect an increase in development completions by organised players.

Moreover, growing commuting expenses will certainly continue to motivate occupants to lease greater space. Thus, e-commerce and 3PL companies would like to locate closer to customer hotspots. In addition, 3PL occupiers dealing with freight handling would prioritise obtaining facilities adjacent to major transit hubs.

The attractiveness of both greenfield and brownfield acquisitions is anticipated to continue to draw capital inflows from both global and local firms. Joint ventures, joint development agreements, and partnerships are anticipated to remain the primary investment vehicles for both greenfield and brownfield purchases.

Leading trends anticipated to affect the future

*Growing institutional capital in retail areas as retail development and consolidation gather momentum and as new brand entities arise.

*Brands are anticipated to expand their store count and rebalance their portfolios.

Tier II, Tier III, and even Tier IV areas are gaining momentum as developers and merchants seek to capitalise on the purchasing power of these regions.

Greater presence of education- and health-focused centres in retail clusters, resulting in developer portfolio diversification.

Residential Sector

According to the research, H1 2022 experienced record sales and launch momentum. As a result of record sales and developers' determination to pass on growing building costs to purchasers, property prices have risen in the majority of micromarkets and sectors. However, monetary tightening by the Reserve Bank of India (RBI) to combat inflation might increase lending costs.

Future appreciation in asset values may be selective: Asset prices have risen due to strong sales momentum and developers' determination to pass on higher construction expenses (due to rising input and labour costs) to customers.

We are now seeing a decline in unsold inventory levels in the majority of India's major cities, with the exception of a few of places. The decline is a result of solid sales despite consistent new product introductions. Consequently, pan-India inventory overhang is at a six-year low, with average quarters to sell for projects reducing from above 15 in 2017 to sub-9 in H1 2022.

While developers are increasingly concentrating on bigger ticket levels (above Rs 1-2 crore), demand for apartments priced at less than Rs 1 lakh continues to dominate sales in the first half of 2022. Similarly, the proportion of larger-than-1,500-square-foot apartments in new launches has increased, although sales continue to be dominated by smaller-than-1,500-square-foot units.

Strong momentum in land acquisition will continue: Both developers and investors have shown a rising interest in this industry. The residential sector contributed for roughly 36% of the over $5 billion spent to buy approximately 4,000 acres of land / development sites between 2020 and H1 2022, the greatest proportion of all real estate sectors.