During 2022, despite the ongoing economic concerns, the real estate sector performed well and witnessed higher traction. The year 2023 has started on some caution with pressures from a looming global recession and slowdown in certain sectors. While some sectors such as office are seeing slowing demand, there are ample opportunities in sectors such as industrial, alternate assets, etc. that are likely to grab stakeholders’ interest.
According to a Colliers’ report — Real estate outlook for 2023 — going ahead, flex, hybrid and green are going be the underlying themes for the office sector. The report states about 60 mn sq ft of additional green Grade A stock has received pre-certifications or are under discussion for green certification which is likely to come in the office markets of Hyderabad, Pune and Delhi NCR.
“The real estate sector saw strong recovery gains and impressive growth in 2022, signaling the significance of office spaces in a post Covid-19 world. As we look at 2023, the global economy is seeing signs of recession which could lead to a relative slowdown. However, the APAC region appears less volatile, with several pockets of opportunity on the horizon. We foresee some stability in the market by mid-year in the office markets. Hybrid working, flexibility and greening real estate will be the key buzz words in the sector,” said Ramesh Nair, Chief Executive Officer | India & Managing Director, Market Development | Asia, Colliers.
“On the investments front, interest in core assets will continue, but investors will continue to unlock value potential in alternate assets such as data centers. AIFs will see greater traction this year,” he added.
Office: Demand by tech companies for flex spaces likely to shoot up in 2023
At the close of 2022, office leasing in India crossed 50 mn sq ft, of which 14% corresponded to leasing by flex players, highest in any year. As the market peers into 2023 amidst a looming global recession, and ongoing layoffs by tech companies, they are likely to increase their space take up in flex spaces as they offer flexible lease terms and aid cost control.
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At the same time, the focus on upgradation of office buildings will be high on agenda, as about 120 mn sq feet of Grade A offices befit for refurbishment in the top six cities of the country. Within retrofitting, developers are likely to focus on improving building efficiency, design adequacy and building sustainability facets. These enhancements are likely to provide long-term benefits and help assets remain competitive in the market, resulting in tenant retention and rental upside. At the same time, occupiers will focus on making hybrid working more efficient with the seamless integration of CRE, HR and IT functions.
Industrial: With about USD2 bn platform investments, new Grade A industrial developments on the platter
During 2022, the demand for industrial & warehousing spaces in India increased 8% on YoY basis. Major global investors have been building investment platforms with Indian developers to fund the development of greenfield and brownfield projects. During 2022, platform deals of more than USD2 bn were announced for the industrial and warehousing sector that are likely to focus on developing the new age warehousing structures equipped with AI and IoT management systems for seamless dispatch and order tracking.
Further, during 2023 the growing need for Q-commerce is likely to increase the demand for micro-warehouses/ dark stores which in turn would lead to higher demand for hub warehouses. At the same time, we expect growth of pure play E-commerce companies to stabilize, while engineering and electronics sectors might see heightened activity.
Investments: AIFs to see greater traction for flexible funding in 2023
Led by the flexibility offered by alternate investment funds (AIFs) for repayment, developers are likely to increasingly opt for AIFs going ahead. Repayment towards AIF platforms can be curated as per developers’ cash flow, which prevents asset-liability mismatch. Such benefits are making AIFs investment magnets, as investors foresee a huge opportunity in these funds to maximize portfolio to risk-adjusted returns.
During 2023, special situations credit is also expected to pick up, to aid stuck projects that are on hold due to liquidity constraints. Moreover, green financing is likely to drive major investment decisions as domestic and offshore investors seek quality Grade A projects that are ESG compliant.
“With increased focus on building a seamless logistics network across the country, the Government aims to bring digital transformation in the logistics sector through the National Logistics policy 2022. The city hubs planned to be built during 2023, as a part of the policy will create more demand, especially for 3PL companies. We also expect that the DESH Bill once enacted will have the potential to change the face of the industrial sector. Moreover, during 2022 global investors partnered with Indian developers for platform investments of about USD2 bn in the industrial sector. These funds would be deployed for developing best-in class and tech-enabled warehouses in the coming years.,” said Vimal Nadar, Senior Director and Head of Research, Colliers, India.