Commercial segment to lead real estate growth in 2021

December 17, 2020 3:54 PM

The commercial segment will continue to remain the preferred choice of investors in 2021 owing to assured and lucrative returns on investment.

A Knight Frank report predicts the commercial yields in Mumbai, Bengaluru and NCR to remain stable in 2021.

The Indian commercial real estate has been on investors’ radar over the past few years owing to its strong fundamentals and resilience. According to an estimate, it has attracted to the tune of USD 15.4 billion of equity investments since 2011. Owing to the strategic location and infrastructural developments, NCR has accounted for the second-largest quantum of PE investments since 2011 (Knight Frank). The commercial sector picked up the pace between 2014 and 2019 with rising rental prices, consolidation of the established players and emergence of REITs. The year 2019 witnessed a record leasing of 42 million sq ft. until the pandemic stuck and threw the economy out of gear, albeit temporarily.

The renewal of economic activity in the Unlock phases, along with a spate of government initiatives, has set the pace for revival in real estate demand. According to a report, the third quarter of 2020 witnessed a whopping 138% increase q-o-q in gross leasing volume to 14.7 million sq. ft. This development augurs well for the commercial real estate to pick up the pace again in 2021 amid the expectations of economic stability.

Real estate has traditionally been considered a safe and stable asset class for investment purposes. The commercial segment will continue to remain the preferred choice of investors in 2021 owing to assured and lucrative returns on investment. Moreover, a prevailing sense of insecurity has also prompted NRIs to invest in Indian real estate. A Knight Frank report predicts the commercial yields in Mumbai, Bengaluru and NCR to remain stable in 2021.

The introduction of REITs in 2019 was a milestone for the commercial segment that has enhanced transparency and paved the way for investment in Grade A commercial spaces. The SEBI guidelines in this regard provide a transparent and safe avenue for raising funds by developers. Since its inception, the REITs listed in India have found favour with investors owing to attractive yields of 7.5%-8% against 3-4% globally. The Brookfield Assets and Blackstone deals concluded in 2020 are indicative of the trend that will percolate into 2021 as well, owing to REITs attractiveness.

As companies mull relocated bases in the backdrop of a trade war between the US and China, India is likely to emerge as the top location of choice. A series of infrastructural developments, burgeoning population, the relative affordability of land and labour and improvement in the ease of doing business are attractive propositions for companies looking to establish their base here.

The re-opening of offices, albeit with hygiene and safety measures, will further give a fillip to the demand for office spaces. Existing tenants will eventually return to the office and demand more area per sq ft for the same workforce to adhere to the social distancing norms.

Nevertheless, we foresee some trends to refine the commercial segment in 2021. The concerns of health, hygiene and wellness would invariably lead to the consolidation of the industry in favour of organized developers. More and more developers are likely to launch offerings that provide a sanitized environment and an array of wellness amenities catering to health-conscious customers.

Facility management will assume a pervasive role in shaping consumers’ perception of office spaces. One can also expect real estate interactions to be aided by new technologies such as the use of Artificial Intelligence-based chatbots and Virtual Reality headsets to improve efficiency and enhance customer experiences. Contactless technologies will be the key to ensure sanitization and hygiene in office spaces. Moreover, transparency and a safe customer experience will be the primary metrics for occupiers to assess properties rather than the earlier metric of affordability.

Bolstered by conducive policy reforms, infrastructural developments and strong fundamentals, the Indian commercial realty is poised to embark on a higher growth trajectory and contribute to India’s economic story.

(By Ravi Singh, Head Communication, Viridian Group)

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