by Subhankar Mitra, Managing Director, Advisory Services, Colliers India
The year 2022, started with a threat of a third wave of Pandemic but there are many silver lines to it. One of the biggest positive side of course is the level of vaccination. Almost 60% of the eligible adult population in India is now fully vaccinated. The vaccination has started for the teenage group as well. The second positive side is that disease has become less fatal and ammunition is now available to the medical fraternity to deal with the pandemic.
The reason for highlighting the positives against the pandemic is to highlight how the Real Estate sector is going to perform in relation to the past two years. The Indian Economy as a whole is expected to grow between 8-9% in FY 2021-22, as a result, job creation would be higher than the past two years. A resilient job market is a sign of a buoyant real estate market as well since the stability of income is a prerequisite for investments and discretionary spending at the household level. In line with the forecasts for the key indicators of the macroeconomy and the emerging trends of the Real Estate sector, the following outlooks could be expected during the year 2022.
Office Market: The occupier’s confidence was back by the second half of 2021. Last year, against all odds, the office absorption was higher than the average absorption between 2016-2018. In the current year the office absorption might even see a 15-20% further growth than the previous year. Technology players and flex space operators have been major occupiers for 2021. The same trend is expected to continue further in 2022 as well. As employees return to the workplace, next-generation offices replete with health and wellness features would be a top draw for occupiers.
Flex Places and Hybrid work model: Many occupiers are going to adopt a hybrid way of work where the employees will have the flexibility to work from home or work from Co-working spaces. The occupiers would also try to manage their expansion risk by taking up seats in Flex Spaces and managed offices, rather than getting into long term lease commitment. Some of the Occupiers could also try to hedge their risk of sporadic lockdowns by adopting multiple decentralized flex spaces. The share of flex spaces in overall office absorption is likely to be around 20-25%. Flex spaces stock in tier II cities is estimated to grow more than 5.5 million sq feet.
Industrial and Warehousing: Warehousing remained a very strong sector within real estate, even during the stringent lockdown times of the economy, which was fuelled by the E-commerce boom. Warehousing stock swelled by almost 35 million sq ft in the previous year. In 2022, the growth is going be around 16-18% year on a year basis. In the warehousing sector, the emerging trend of the large e-commerce players is going to be in the city and last-mile distribution centres. The demand of aggregated land with infrastructure would also be in demand for both warehousing and Industrial setup.
Investments in the Manufacturing sector peaked up in 2021. India attracted about USD 30 billion in the first half of 2021 itself which is almost 15% higher than the previous year. The new impetus of “Make India” with Production linked incentive scheme makes it a very attractive proposition for fresh investments in greenfield expansion of manufacturing processes. The impetus for Electric vehicles is going to propel downstream ecosystems like batteries, charging stations and numerous equipment and components makers to look for greener pastures in the industrialised states. Going forward India could also become a major hub for Drone Manufacturing, Avionics, and Semiconductors. India could witness a major CAPEX spend in manufacturing and a part of will be invested in land and Building infrastructure.
Residential Sector: Residential segment saw strong recovery gains led by government stimulus, market-led price discovery, new demand. Investment volumes in the residential sector made a comeback in 2021. In the first nine months of the year, investments in the residential sector stood at USD420 million, surpassing the volumes seen in the whole last year. Investors are seeking a buy-in in the asset class, especially in the near-completion stage. Investments are spurred by renewed residential demand, led by a higher inclination to own homes, low home loan rates and steady prices. The best brands in Residential development will outscore across the market while buyer preferences have tilted for townships and gated communities with best-in-class amenities and infrastructure. Second homes and plotted development would also remain in demand around the mega metro cities, starved for openness and greenery.
Alternative Asset Class: There are three segments within the alternative asset class that are going to have a special focus in 2022. These are Co-Living/ Student Housing, Senior Living and Data Centre.
During the period of 2015-2019, Student Housing and Co-Living witnessed exponential growth resulting in a sharp increase in the number of operators and investments. However, the pandemic marred the growth story of co-living temporarily, resulting in some players exiting the business thereby creating opportunities for acquisition and expansion for the others. With Covid-19 vaccination drive in full swing, the segment is ready to enter a new phase of growth driven by factors such as pain point assessment and product recalibration resulting in the provision of the “Real & Right Value” for the consumers.
Senior Living Community is one of the fastest growing segments. The need for a specialised care centres for the senior citizens was felt by most of the families. The enquiries for accommodation in senior housing facilities are growing by every day. In 2022, more senior living communities could be seen within the gated communities and township projects across the country which would be run by branded operators.
Data Centre is another sub sector to watch out for from the investor’s perspective. The Indian data centre market size is expected to reach USD 1.5 billion by 2022. HCI (hyper-converged infrastructure) equipment is power ravenous. Hence, the demand for energy-efficient solutions and accessories will increase. Colocation providers in India would tend to shift toward solar energy to reduce their carbon footprint. Mumbai would be the prime focus for DC players,other cities of interest would be Gurgaon, Bangalore, Chennai, and Hyderabad.
Capital Market: Colliers Global survey of investors indicates that 2022 is likely to be a benchmark year for the industry as global capital activity increases and economies stabilise and expand. By the First of 2021 itself investments worth USD 2.9 billion were poured into Indian Real estate, registering a 52% Y-O-Y growth. The Institutional investors would continue to focus on income-yielding assets. There could be a few more ‘platform level investment’ by pension and sovereign funds with top developers to create thematic investment vehicles. REIT has been a success story in India so far generating a return of 7-9% to investors. There could be more such listing in the times to come.
The new year has given new hope and excitement to all, as people are learning ways to conduct business amidst staying safe. Technological innovation and enhanced medical services brought hope to the communities that economic activities would continue to move on despite intermittent disruption. Thus, the situation has now become more conducive for people to make their investment decision in real estate overcoming the wavering and uncertainties about the future.
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