Commercial real estate to remain buoyant in 2021

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January 19, 2021 1:52 PM

According to a Colliers International report, commercial real estate has witnessed an increase in leasing activity from 41.6 million square feet to 58.6 million square feet at a CAGR of 12% over the past three years.

Commercial real estate has been on investors' radar owing to assured and lucrative return potential.

Commercial real estate has emerged as a resilient segment in the past few years. According to a Colliers International report, the sector has witnessed an increase in leasing activity from 41.6 million square feet to 58.6 million square feet at a compound annual growth rate (CAGR) of 12% over the past three years. The segment, thus, seems to have bright prospects of growth in 2021, owing to the expectations of economic stability. Another report by Colliers India has highlighted the commercial space absorption shot up to 58% for the quarter ended September 30th, 2020. This development is a testimony to the green shoots of recovery.

With the Unlock phases followed by the festive season, commercial spaces are re-opening, albeit with safety measures and precautions. The government has also undertaken several measures such as slashing of the repo rate and reverse repo rate, granting of Emergency Credit Line Guarantee Scheme (ECLGS) to real estate, to revive customer sentiment. A Fitch report predicts consumer spending to rise by 6.6% in 2021.

“In the commercial segment, the high-street concept has gained momentum as compared to malls and this will continue in the year 2021. The model that provides all amenities to consumers under one roof, i.e mixed use property, has emerged as a preferred trend for the commercial segment owing to its self-sustainability. We have signed up nearly 150 brands in the commercial segment in Gurugram, leasing around 5 lakh sq ft of space,” said Pankaj Bansal, Director, M3M.

Commercial real estate has been on investors’ radar owing to assured and lucrative return potential. The growth of the IT/ITes sector and a spate of infrastructural developments have fuelled the demand for commercial spaces. A Knight Frank report estimates that the commercial segment has attracted investment worth $15.4 billion over the past decade. The recently-concluded Brookfield and Blackstone deals are the testimony to the immense potential of REITs in attracting investment, especially in Grade A spaces.

Anuj Kumar Garg, Vice President-Customer Engagement & Distribution, Viridian RED, said, “The prospect of Indian commercial real estate seems resilient in 2021. In the last few months, a couple of transactions led by global firms in the Noida region have strengthened the market sentiments. In the wake of the pandemic, we foresee some trends strengthening the commercial sector in the coming year. A sanitized environment coupled with wellness amenities to ensure hygienic and safer space would be the priority of developers and occupiers. Technology has played a vital role in the realty business during the lockdown and transformed the business strategies. The trend is here to stay as more and more firms are likely to adopt technology-enabled systems to ensure sanitization and hygiene in office spaces.”

The COVID-19 has heralded a paradigm shift in commercial real estate patterns. According to a JLL report, net absorption increased by 63% to 5.4 mn sq ft in Q3 2020. As opposed to IT/ITes, demand for leasing was driven by the manufacturing and e-commerce sectors. The health and hygiene concerns are evident through stringent measures undertaken by commercial spaces to revive the customers’ confidence. This phenomenon will inevitably lead to consolidation of the industry, thereby benefiting organized players. The COVID-19 pandemic has led to the proliferation of technology to boost operational efficiency and maximize customer experience.

Developers expect the commercial segment to remain buoyant in 2021 owing to improvement in the ease of doing business among other conducive measures and the prospect of several firms relocating to India.

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