Commercial property to witness an uptick in investments as offices open up

There is hardly any dimension of our lives that the 2020 pandemic and technology as cause and effect (respectively) have not touched.

Google Maps and every doorstep delivery service out there, for instance, have altered how we commute, order groceries, shop etc. The surge of video conferencing to replace physical meetings at a time of need has now taken the shape of the ‘Metaverse’ – ‘virtually augmenting’ festival celebrations, concerts by global artists, and even reshaping commercial real estate utility. Just when you thought that the physical space we move around was finite, it’s not! These are surely some interesting times to live in and see how technology and real estate will once again intertwine to create something new for all’s benefit.

That said, what does the commercial ‘brick-&-mortar’ situation look like? Does the cueing of the virtual universe into our lives translate to a decline in physical commercial real estate? How have investors coped with the post-pandemic scenario as offices are opening up, and normalcy seems to have reinstituted around us?

Riding high on investments and fundamentals

Despite global whirlwinds disrupting oil prices, global interest rates, geopolitical conflicts and more, back home, Indian commercial real estate has been focused on improving market fundamentals. Even though the rise of the hybrid/ remote working models momentarily impacted office occupancies, it is also seeing robust capital inflows due to new market penetrations (fast developing tier-1 & 2 cities). Furthermore, the establishment of clear guidelines for the adoption of hybrid working systems, incorporating ESG foundations, recalibrating “core+flex” workplace designs etc. are boosting demand, giving investors confidence about their portfolio’s returns, as well as pushing sales toward pent-up demand.

It is not a surprise, therefore, that the Indian real estate sector as a whole continues to not only demonstrate its resilience but also pick up momentum towards rapid growth. Commercial remains the object of investors’ affection, given that the overall absorption of office spaces in 2022 is expected to reach 45-50 million sq. ft. The growth is estimated to be between 12% and 15%, higher than last year. Leasing also continues to be strong, growing >20% on a y-o-y basis this year. Investment inflows into the Indian real estate sector came up to a whopping $5.5 billion, likely to rise by over 5% and reach the pre-pandemic levels of 2019.

An undeniable tryst with technology for higher yields

It seems that the uncertainty looming around office and retail real estate as a stressed asset class has not only diminished but rather been favoured for higher returns. The current times are very lucrative for investors looking for good deals, with promising 10-12% annual rental yield on grade-A office spaces, stability in REIT investments, as well as the opportunity for capital appreciation in the future. Bengaluru’s Whitefield, Electronic City, Gurugram’s Sohna Road and MG Road, and Chennai’s OMR in these cases, for example, have emerged to be favourable investment hotspots.

At the same time, I believe the ubiquitous use of technology in real estate will continue to be a vital factor to consider for investors. PropTech has become invaluable in everything from the launch of new projects, scheduling virtual walkthroughs, managing spaces with contactless features, using AI and the cloud to monitor tenant profiles, screen applications, predict rental yields and more.

All aboard!

From hospitality and warehousing to retail real estate segments given financing, technology upgrades, and policy boosts over the course of the pandemic, we can safely assume that the PE investment in Indian real estate is projected to reach close to $7 billion in 2022. With a health governance system frequently introducing policy updates to encourage investments and ease of doing business in the nation as offices open up, the industry has the potential to reach $1 trillion by 2030.

(By Amit Kumar Aggarwal, Founder and CEO, NoBroker)