Changing Dynamics in the commercial Real Estate Sector

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The commercial real estate market is witnessing a gradual recovery as the pandemic subsides. The start of 2022 has brought new opportunities in the commercial real estate sector. The economic growth rate determines this segment’s long-term prospects and as India is one of the world’s fastest-growing economies, commercial real estate is bound to have substantial long-term growth. This strong development will be aided by rising demand for good workplaces, commercial assets, and new commercial concepts.

It is expected that commercial real estate in India will grow at approximately 13% CAGR in the 2022-2027 period. According to JLL, net absorption in the Indian office sector was 11.56 million sq. ft. in October-December 2021, the most in the recent eight quarters and up to 86% quarter-on-quarter. For the half-yearly period of July to December 2021, net absorption increased by 26% yearly. The uncertainty that had surrounded office as an asset class since Covid’s inception is slowly dissipating, with companies inviting their staff back to work. Companies are now considering a hybrid work environment where the office plays an important role. Investor confidence has risen as a result of this.

Furthermore, with Covid coming under control, leasing activity is expected to pick up in the top seven cities. Many offices have already opened, and many more are expected to start soon. Many experts believe that, in a favorable location, Grade-A office space can generate a 7.5-10% yearly rental yield.

Bengaluru continues to witness significant demand from the IT/ITES industry as well as start-ups. The city’s most popular areas include the Outer Ring Road, Electronic City, and Whitefield. Same is the case with almost all Major IT hubs such as Mumbai where demand for office space in BKC as well as KMDC region is witness a significant rise. Furthermore, tier-II cities such as Kolkata, and Chennai are also gaining traction among investors.

Furthermore, demand for co-working space is also witnessing tremendous growth as more and more companies are looking for flexible working space post-Covid. Not only big firms but co-working space providers are also seeing an increase in queries from start-ups as well as from tier-II cities. According to a recent JLL analysis, the current market penetration of flexible workspaces in total office space is at 3%, which is predicted to rise to 4.2 percent by 2023. Despite some short-term interruptions and hurdles, the research claims that increasing demand from major businesses would enable the industry to grow to more than 50 million square feet by 2023. Over the next three to four years, the flexible spaces segment is predicted to increase at roughly 15-20 percent per year.

Similarly, the concept of Shop-cum-Office is also gaining momentum. Shop-turned-office properties are great for individuals wishing to invest in a location where they may open anything from a fine dining restaurant to an upmarket commercial center to an office. Due to the changing dynamic in the sector post-Covid, Investor tastes have shifted, increasing the demand for SCO spaces in upright sites. Furthermore, developers are focusing on mixed-use Shop-cum-Office real estate types. The sole reason is that in the aftermath of the Coronavirus epidemic, enterprises across industries have recognized the formation of start-ups, work from home culture, and so on.

Commercial real estate is expected to increase at a faster rate in the next three to six months. The market for commercial property will soon see an increase in both rental and capital value. The business world has begun to take an active role in growing its operations. The increased demand for flexible working spaces and SCOs in this segment would aid the need for rental houses and amenities as well, providing developers with significant prospects. The emergence of these new concepts as well as the roaring engine of the Indian economy is a clear indicator that the Indian commercial real estate sector is going to witness a strong long term growth.

Are you excited to try your hands in the booming commercial real estate segment? We would love to hear from you.

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