Resilience sums up Indian real estate in 2020

December 31, 2020 10:42 AM

The COVID-19 pandemic has paved the way for innovation and change, causing both developers and occupiers to take a relook at their real estate portfolios.

Following a slowdown in sales and launches in the residential sector due to COVID-19, green shoots of recovery are now being witnessed as housing sales in Q3 2020 increased by a strong 84% on a quarterly basis.

The COVID-19 crisis has globally reinforced the need to anticipate – and adapt – to the demands of the new normal. The changed behavior exhibited by every individual due to COVID-19 is expected to alter the way consumers and businesses use and interact with real estate. As a result, it can be safely said that the sector is now entering an era of innovation and creative problem-solving. In India, the government and Central bank have made timely interventions to mitigate the impact of the pandemic on the economy, including the real estate sector.

Below is a lowdown of how the Indian real estate story unfolded in 2020:

Physical office is here to stay

Robust occupier interest, the ascension of organized real estate developers and the emergence of institutional capital accelerated the growth of the office sector in the previous decade. While COVID-19 has impacted this sector, it could very well become the flag-bearer of recovery in real estate, considering the advantages of economies of scale, cost benefits and the vast talent pool available in India.

The work from home model, augmented by COVID-19, was more of a forced experiment. In the long term, the physical office space is expected to remain at the center of workplace strategies, despite the fact that work patterns are continually evolving and altering the way both occupiers and developers are operating. Following COVID-19, the concepts of wellness and agility – which had been around for some time earlier – have gained more ground. We are also witnessing a growing inclination towards a more distributed network and a hybrid work model, wherein a portion of the workforce would be able to work-from-anywhere (WFA) with the option to operate out of remote locations on certain day/s of the week. Technological advancements are likely to act as the bridge between the distributed teams operating through a hub-and-spoke model.

Retail in the midst of evolution

Changing patterns of consumer behavior and growing integration of online and offline retail formats have been influencing the retail sector in the past few years. These trends have only become more widespread due to COVID-19, with e-retail breaking new frontiers in terms of consumer segments. Post COVID-19, operators are re-evaluating the location, design and operational models of retail properties; brick-and-mortar stores are likely to evolve and become more engaging. Going forward, use of tech would also be a key trend in this space as retailers increasingly digitize merchandising and transacting mechanisms. CBRE expects to see a higher number of stores with unique features and product mix – all of which would continue to operate under a cohesive brand culture.

Logistics & warehousing redefined resilience

While the COVID-19 pandemic affected leasing activity, India’s Industrial & Logistics (I&L) RE sector has shown remarkable resilience. In 9M 2020, 3PL firms and e-commerce operators accounted for more than half of the leasing activity, followed by engineering & manufacturing firms. Hyperlocal delivery gained steam during the pandemic as e-commerce players began sourcing their deliveries from neighborhood stores to meet customer demand. In the times to come, this trend is likely to continue as e-commerce finds more takers among consumers.

In addition, the modern supply chain ecosystem is expected to become more diversified and networked, laying equal emphasis on resilience, near-shoring capabilities, sustainability and agility so as to ensure timely and transparent data flow among stakeholders. Digitization is also moving towards warehousing facilities where, going forward, the use of AI, IoT and Big Data would result in the creation of smarter warehouses that would significantly improve supply chain efficiencies.

Residential sector on the path of recovery

Following a slowdown in sales and launches in the residential sector due to COVID-19, green shoots of recovery are now being witnessed as housing sales in Q3 2020 increased by a strong 84% on a quarterly basis. This could be attributed to strong policy support, low mortgage rates, reduction in stamp duty and property registration fee (in a few states) along with incentives and attractive payment schemes offered by the developer community. Furthermore, last-mile funding mechanism provided by the government for delayed housing projects have helped in boosting stakeholder sentiments. This has created an enabling environment which has strengthened the confidence levels of end-users and fence-sitters.

Going forward, we believe that the mid-income (INR 45 lakh to INR 1 crore) & budget home segments (less then INR 45 lakh) would continue to dominate residential sales in 2021 as well. We also expect policy measures to continue to bolster housing demand and recovery of the residential real estate sector in the coming year.

Alternate Segments

The year 2020 has witnessed an amplified interest in alternative asset classes such as flexible workspaces, data centers (DCs) and cold storage units. In the wake of COVID-19, flexible workspaces are expected to increasingly cater to a more customized end-user demand, thus giving a fillip to managed workspace providers. Further, the continued rise in the use of smart devices and OTT platforms is expected to lead to a growing focus on the importance of DCs. CBRE expects the DC capacity in India to cross 600 MW during 2020-21. We also anticipate corporates to increasingly shift from captive to colocation DCs. Cold storage is another new segment that has gained attention, fuelled by huge omni-channel distribution of Food & Grocery across tier I and II cities in the country. CBRE expects the overall CS real estate stock to rise to 1,400 -1,500 million sq. ft. and the overall CS capacity to reach 70 – 75 million tonnes by 2023.

Outlook

The COVID-19 pandemic has paved the way for innovation and change, causing both developers and occupiers to take a relook at their real estate portfolios. Doing so would require shifting from traditional approaches and embracing new, transformational methods — which would be accelerated by widespread tech adoption, sustained policy impetus and accelerated investor interest across RE in India. Overall, we expect demand for real estate to remain robust and the sector to emerge resilient in the future.

(By Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE)

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