India has seen growth in the commercial real estate sector, driven by the highest year-over-year rental demand observed in Nagpur (84%), Coimbatore (30%), and Indore (6%). This growth is also observed in the office leasing space, which is also expected to grow by 10-15% in the coming fiscal year, as per the Magicbricks report titled ‘India’s Tier 2 cities: Emerging Real Estate Growth Engines’.

Indian real estate seems to be emerging as a preferred investment avenue amidst market volatility. This seems to be driven by the rising per capita income as well as the growing social infrastructure in Tier-II and Tier-III cities. And with work from home shifting to hybrid models, 2022 witnessed a huge demand for office spaces in key cities across the country. The office market’s net absorption across the top seven cities, including Mumbai, Bengaluru, and Hyderabad, was recorded at 38.25 million square feet in 2022, hitting a three-year high, according to JLL India. The net absorption for the calendar year 2022 has surpassed the five-year pre-pandemic average (2015–2019) by 3.1% as well, displaying the strong resilience of the Indian office markets.

NRIs’ participation in the markets

Investors in India and abroad are capitalising on this growth, especially in their own cities. According to the MYRE Neo-Realty NRI Survey, NRIs are more likely to invest in their origin city, and around 50% of these NRI investors are millennials. Not just commercial real estate, but ultra-luxury units and vacation homes have seen an uptick from the investor community. The strengthening of the US dollar against the rupee is giving investors a reason to enter the home market with better purchasing power. Newer proptech platforms have added to this rising interest by revolutionizing the real estate sector and enabling seamless onboarding of individuals irrespective of geography. This will continue to draw NRIs to the Indian real estate market.

Aryaman Vir, Founder and CEO, MYRE Capital, says, “The Indian real estate sector has been a significant contributor to India’s GDP. After two years of pandemic-induced lockdowns and economic turmoil, this year has witnessed a steady growth in demand for residential as well as commercial real estate. With work from home shifting to hybrid models, 2022 will witness a huge demand for office spaces in key cities across the country. And the boost in the e-commerce industry and the IT hub has also acted as a catalyst for the tremendous growth in the commercial real estate sector.”

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Favourable policy environment

The demand for Grade A premium office assets is likely to increase to 1.2 billion sq. ft. by 2030 in India. This growth is fuelled by different trends, like a strong ROI, more considerable NRI and FDI investment, and solidified government initiatives.

“Policy initiatives like the Smart Cities Mission and AMRUT (Atal Mission for Rejuvenation and Urban Transformation) are expected to further amp up this demand. These initiatives, channelled towards developing ground-level infrastructure in strategic locations across India, will help encourage corporates and global conglomerates to set up their businesses and manufacturing units in these places,” says Sudarshan Lodha, Co-Founder and CEO, Strata.

Furthermore, other key factors like the emergence of India as an international IT power, the rise of the e-commerce industry, etc. would result in a substantial increase in the demand for spaces like data centres and sophisticated warehouses. 2023 will witness the rise of commercial spaces in lesser-explored Tier II and Tier III cities, acting as a strong catalyst for employment generation. This kind of growth is reflected in the investments received by the real estate sector, which has received PE investments totalling USD 5.1 bn across the office, warehouse, residential, and retail sectors in 2022. This shows the industry’s confidence for growth in the sector.