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New-age asset classes are likely to gain traction, says Shrinivas Rao, FRICS, CEO, Vestian

New-age asset classes are likely to gain traction, says Shrinivas Rao, FRICS, CEO, Vestian

Sticky headline inflation and a slender slowdown in GDP growth owing to escalating geopolitical conflicts globally impacted the commercial real estate sector

How has the demand for commercial spaces (IT, retail, warehousing) evolved across different cities in 2024?
Indian real estate sector remained resilient in 2024 amid global headwinds and domestic macroeconomic challenges. Office market faced initial challenges in the first quarter of 2024, with moderate absorption and restricted new completions. The market rebounded significantly in Q2 2024, maintaining strong growth momentum through Q3 2024. During the first nine months of the year, 49 million sq ft was absorbed, marking an 18% increase compared to the same period in 2023. Similarly, new completions rose by 8% year-on-year, reaching 36 million sq ft over the same timeframe. Bengaluru led the absorption in the first nine months of 2024, capturing a 28% share, up from 25% in the same period of 2023. The city also recorded the highest new completions, contributing 30% of the pan-India supply. Hyderabad and Mumbai also played key roles in driving pan-India absorption and new completions during this period.
Retail leasing remained steady in 2024 despite limited supply of Grade-A malls. Fashion, apparel, and entertainment segments led the absorption, propelled by increased consumption and easy financing options. This robust demand and restricted supply pushed rentals northwards across the major cities in India. The Warehousing & Logistics sector recorded strong absorption of 16.6 million sq ft in the first half of 2024, marking an 8% growth over H1 2023 and a significant 26% increase compared to H1 2022. Micro-markets like Bhiwandi and Navi Mumbai in Mumbai, along with Pune’s peripheral areas witnessed heightened demand for warehouses during H1 2024. While weighted average rentals remained under pressure due to volatile market conditions, Chennai, Pune, Kolkata, and NCR still recorded annual rental growth in the range of 5%-30%. Rentals declined by 8%, 7%, and 5% in Bengaluru, Hyderabad, and Mumbai respectively.

Apart from IT, retail, and warehousing, how did segments like co-working spaces, integrated township, data centers, and retail spaces performed?
Flexibility in lease terms, health & safety of employees, and affordability became success mantras for businesses during the pandemic and continued to be so in 2024 as well. This fueled significant growth in flex spaces as flexible stock reached 67 Mn sq ft in H1 2024, registering an annual increase of 25%. Furthermore, the stock is expected to cross 100 Mn sq ft by 2026. Integrated townships gained prominence in 2024, offering a self-sustaining urban environment that promotes work-life balance by minimizing travel time.
India's digitization efforts, coupled with improved internet penetration and the rise of artificial intelligence and machine learning tools, have driven the growth of data centers in the country. Chennai and Mumbai have emerged as key market leaders, largely due to the presence of sea landing cables.

How did macroeconomic conditions, like inflation or GDP growth, impact commercial real estate and how will these conditions shape the demand in 2025?
Sticky headline inflation and a slender slowdown in GDP growth owing to escalating geopolitical conflicts globally impacted the commercial real estate sector. RBI kept the repo rate unchanged at 6.5% during the current year to tame inflation. While a stable repo rate kept investor sentiment stable in the real estate sector, mortgage rates continued to be on the higher side for developers. RBI is expected to further ease the monetary policy in 2025 by reducing the repo rate which may boost the demand for real estate assets across the country. The central bank has already reduced CRR (Cash Reserve Ratio) by 50 bps to 4%, boosting market liquidity and enabling growth. Additionally, rapid infrastructure developments are likely to bolster real estate growth.

What are the growth projections for the commercial realty sector in 2025? Which segments are expected to drive demand in 2025?
New-age asset classes such as data centres, flex spaces, warehousing, student housing, and senior living are likely to gain traction in 2025, fueled by rapid urbanization, evolving lifestyle preferences, digitization, rise of AI & ML, and quick commerce. Office space absorption is expected to peak in 2025 at 65-70 Mn sq ft, majorly driven by IT-ITeS, BFSI, and Flex Spaces. As mentioned earlier, flex stock is anticipated to cross the 100 Mn sq ft mark by 2026. Moreover, tier-2 and tier-3 cities are expected to gain traction owing to improved connectivity with metro cities and ample availability of land parcels at competitive rates. This may increase the demand for flex spaces in smaller towns, providing an opportunity to expand.

Global Capability Centers (GCCs) emerged as a key driver of demand for office spaces in 2024. What is the outlook for this segment in 2025?
As per industry estimates, India houses over 1,700 GCCs and is likely to reach 2,400 by 2030, majorly driven by the rapid growth in IT, telecom, BFSI, and life sciences sectors. This may lead to an uptick in the demand for commercial real estate across the country.
Sub-dollar office rentals, a rich talent pool of skilled IT professionals, robust infrastructure, and favourable government policies have provided a conducive environment to businesses, resulting in a significant increase in the demand for GCCs in India.

There is a noticeable shift of office spaces to non-metro cities in 2024. Will this trend continue in 2025? Which non-metro cities are emerging as key commercial hubs, and what factors are driving their growth?
The growth of Micro, Small, and Medium Enterprises (MSMEs) and start-ups along with rapid urbanisation and improved connectivity with metro cities are majorly driving the growth in tier-2 cities. To leverage upon the potential of emerging markets and capitalize on relatively lower costs, several MNCs have expanded their footprint to tier-2 cities. The emerging tier-2 cities in India include Lucknow, Indore, Ahmedabad, Jaipur, Kochi, Chandigarh, Nagpur, Bhubaneshwar, Visakhapatnam, Surat, Raipur, Thiruvananthapuram, and Guwahati. Several large-scale infrastructure projects and favourable government policies are likely to provide impetus to these cities, boosting their economic profile. Enhanced connectivity through road, rail, air, and sea is expected to drive the next wave of growth in tier-2 cities across the country. 




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