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RM Reports

The future of retail and commercial real estate in India

by Pooja Bhatia

Real estate particularly commercial real estate led by FDI is expected to be on a positive trajectory. The recent reforms introduced by the government brings in transparency and thus, more confidence in the real estate sector in India. Our GDP is improving. A better and stronger Indian economy will in turn boost sectors like e-commerce, start-ups leading to demand in real estate led by logistics, warehousing, etc. A better performing Indian economy also means more activity in retail. Hence, the reason to believe that there will be a strong growth in the commercial real estate sector.

Take, for example, the trend of co-working space led by start-ups in India. Even though it has practically reduced the demand for office spaces, but the demand for co-working space is so much that it significantly contributes to the real estate growth across India. The demand for flexible and co-working spaces will triple in India in the next three years, fuelled by start-ups as well as big corporates. Co-working companies took up 2 million sqft of commercial office space in the first quarter of this year alone, which is more than the 1.8 million sqft they took up in 2017, Knight Frank said in a report recently published.

In addition, the investor outlook for international and domestic players is largely positive. The commercial leasing activity, for example, is buzzing. Grade A spaces have witnessed a rise in rentals and valuations steadily.

Regulatory restrictions have so far restricted the FDI growth in India. Now, with a liberalised framework, especially 100% FDI through the automatic route, there has been an increase in investment in the commercial real estate space.

As per recent reports, foreign investment in real estate in India was approximately $5.6 bn in 2016, out of which approximately 40% of the investment was in the commercial space. This denotes a major shift in the asset allocation for funds towards the commercial real estate, which stood at approximately 21% in 2015.

Metro cities have accounted for 59.71% of the total commercial space demand in the country, as per the Indian Brand Equity Foundation. The maximum growth has been witnessed in Mumbai, Bengaluru, Kolkata, NCR, Chennai, Ahmedabad, Hyderabad and Pune. Together, these cities offer better accessibility, infrastructure, transport facility, and sewage & drainage systems apart from the location advantage for commercial real estate activity across the country.

It is mainly the ‘Make in India’ investment campaign of the government which is leading to growth in the commercial real estate sector specifically in real estate assets like warehouses, industrial assets, and logistics assets.

Warehousing and logistics are also attracting FDI especially after the implementation of GST which makes the sector more organised.

However, a recent report by research firm Venture Intelligence says that the Indianrealty sector has attracted investments worth $1.08 billion in the quarter ending June 2018 across 11 different transactions. The figure is 20 percent lower in comparison to the previous year. The global investors have so far shown an increasing interest in the Indian real estate sector. The report further states that the decline in numbers is due to ‘delayed conclusion of few large deals’. RM team had earlier reported on the potential entrants in the commercial real estate in India. Read here.

Consider this; the commercial real estate segment outshined the residential segment both in terms of value and volume in the second quarter of 2018. The value of commercial segment stood at $766 million and residential $34 million in the same period.

Pooja Bhatia is a property news enthusiast, who likes staying updated on business and corporate news, lifestyle at home, home interior elements, location insights and rest of the information, to make living better. She is also an avid traveler (a blogger on holidays) and an avid reader and a part of this real-time information, she converts into real estate.

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