Sustained investor’s interest to keep commercial real estate resilient in 2021

May 11, 2021 1:01 PM

The second wave of Covid has imbued the sector with uncertainty and delay in decision making but the pause will be temporary and growth in investments will break the inertia soon.

During the first quarter, institutional investments in Indian real estate went up by 21% and a JLL report confirms sustained investor interest in India’s realty market.

India’s real estate segment has remained resilient during the pandemic period. Buoyed by conducive government policies, central bank support, stricter regulations, tax reliefs, stamp duty reductions, and easy investment opportunities, the year 2020 ended on a high note as the market reflected signs of recovery from the lockdown impact with a boost in consumer confidence. The growth continued in the first quarter of FY 2021 with ease in movement restrictions and increased economic activities. No doubt, the second wave has imbued the sector with uncertainty and delay in decision making but the pause will be temporary and growth in investments will break the inertia soon.

The early 2021 reports are reflecting growth in India’s emerging realty segment. During the first quarter, institutional investments in Indian real estate went up by 21% and a JLL report confirms sustained investor interest in India’s realty market. Institutional investments including private equity, pension, and sovereign wealth funds continued their momentum with growth in volumes at $922 million. The rise in investment was driven by more activity from funds and closed development stage deals supported by external macroeconomic factors.

The commercial segment mainly the office market offers resilient and long-term growth. These factors attract investors towards quality assets during the initial core development stages and also make them confident. Figures clearly show that commercial office assets dominated deals with $864 million transacted, translating into 94% of the total value in the first quarter, as per JLL. Buoyed by this response from consumers, developers are raising growth capital for the next phase of expansion. The speedy vaccination drives and timely, cautious response by the government are setting an optimistic outlook in the coming quarter indicating the market’s recovery. The leasing momentum for the office in the coming months will largely depend on the time taken to contain the second wave of covid-19 cases.

2021 will be the year of growth for the commercial real estate segment and demand will be driven by the IT sector, e-commerce, corporates, and manufacturing. Even during the pandemic year of 2020, a steady flow of investments continued in commercial real estate, and the inflows were around $4.8 billion. With the increased number of new completions and well-networked, diversified, and tech-enabled supply, the office space market will show an upward trajectory. The sector, with lessons learned from the past and relaxation in conditions, is expected to boost confidence in a customers’ decision-making, deal evaluations, and investment processes. Other than commercial office spaces, the residential segment, warehousing to is on recovery track with increased sales and demand. These sectors too are expected to attract funds in the coming quarters.

The rise in Covid cases will push companies to continue with flexible policies to reshape offices to suit the modern workforce. All kinds of companies will work to change office models according to their workforce preferences. The new purpose will be finding a balance in the work-life mix and facilitate the changing work pattern. A new concept of satellite workspaces is emerging to help the buyers to find a better work-life balance with offices near their residential spaces.

Today, the country is battling unforeseen circumstances due to the second wave of Coronavirus. However, the realty segment is well-versed with Covid appropriate behaviours. The doubts over a strict lockdown are now vanishing and developers today are adapted to the know-hows of running operations during a pandemic. Driven by digitization, Covid-appropriate behaviours, financial assistance, and speedy vaccination drives, the sector showed promising results in Q1 FY2021 and despite a temporary pause due to the second wave, the uptick trend will continue this year.

(By Ravi Singh, Head Communication, Viridian Group)

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