~Bangalore tops the chart as No. 1 destination in Asia for office space occupancy~
- Policy reforms across sectors in 2018 led to a tremendous improvement in India’s ‘Ease of Doing Business’ ranking; India remains the fastest growing major economy in the world
- 2018 saw 47 million sq. ft. of office space uptake, dominated by Bangalore, Delhi-NCR and Hyderabad. Trend to continue in 2019 with evolving landlord occupier relationships to be the enablers of change
- Retail activity maintained a healthy demand-mix across various brand categories; strengthened by the completion of nearly 5.1 million sq. ft. of investment grade supply in 2018. Despite tightening of FDI norms in e-commerce, omni channel will continue to reinvent retail formats in 2019
- The logistics sector picked up on the back of GST implementation and granting of ‘infrastructure status’; absorption levels touched nearly 24 million sq. ft. in 2018
- With the industry absorbing the impact of RERA and GST implementation; residential demand and supply inched upwards in 2018; alternate asset classes such as co-living, student and senior housing to emerge stronger in 2019
- Nearly USD 4.7 billion of investments were witnessed in 2018, primarily across office, land / development sites and the retail sector. Investor appetite for land remained strong with land accounting for 34% of all investment activity in 2018. Real Estate Investment Trusts (REITs) became a reality; thereby providing investment opportunities to retail / institutional investors
Bangalore, March 29, 2019: CBRE South Asia Pvt. Ltd., India’s leading real estate consulting firm, today announced the findings of its Real Estate Market Outlook 2019 – India. As per the report, India continues to retain its position as the world’s fastest growing major economy, on the back of improved investor confidence and better policy reforms. The IMF’s database also suggested that India’s contribution to world growth has increased from 7.6% during 2000-2008 to 14.5% in 2018. The CBRE report highlights 2019 trends and dynamics across various segments in the real estate sector in India.
Anshuman Magazine, Chairman & CEO – India, South East Asia, Middle East & Africa said, “The current government’s pro-reform policies have yielded positive news for the equity market and investment inflows, thereby positioning India as an attractive business destination. The growth of the Indian Real Estate market in 2019 will be driven by numerous factors including technology, demand-supply dynamics, improved ease of doing business rankings and the dust settling post the implementation of reforms such as GST, RERA among others. We expect to see significant growth across segments, which will lead to the addition of almost 200 million sq. ft. of new real estate space in 2019 across categories including office, retail, residential and logistics”.
Technologies such as Artificial Intelligence, Augmented Reality, Internet of Things, Robotic Process Automation and Blockchain are trends that are reshaping how the Real Estate sector works. For instance, AI is allowing for more productive location decision making, predictive maintenance of assets, easing portfolio planning, reconfiguring workspaces, automating FM processes and making spaces smarter. Similarly, IoT is allowing for the construction of smart buildings and smart cities, while creating more data for analytics also across portfolios, fine-tuning portfolio management decisions and enabling more accurate valuations.
OFFICE MARKET OUTLOOK: DISRUPTING THE DISRUPTIONS
The year 2018 was a landmark one with office space absorption crossing an all-time high of 47 million sq. ft. (up 5% y-o-y) across the nine leading cities, boosted by a supply influx of 35 million sq. ft. (up 17% y-o-y). Bangalore and Delhi-NCR continued to dominate take-up; Hyderabad emerged as the third most preferred office destination, overtaking Mumbai.
Market Outlook trends expected to continue from 2018
o Polarisation between cities: Demand and supply would continue to be focused towards the most prominent destinations i.e., Bangalore, Delhi-NCR, Hyderabad and Mumbai.
o Infrastructure-led growth: The pace of infrastructure development will determine the growth and emergence of new micro-markets; supply and demand will be influenced by infrastructure completions, particularly provision of metro services/ major arterial roads.
o Greater appetite for SEZ’s/tech parks: With the sunset date of March 2020 fast approaching (which will impact the benefits for occupiers), heightened activity for both absorption and development completions is expected in the SEZ and tech park space in 2019.
o Tech-driven real estate decisions: Technology will continue to impact occupier anddeveloper decision-making, resulting in increased flexibility in both space leased and released.
Office Market Outlook for 2019: Expected in 2019
o Absorption trends: Leasing activity in the sector will be driven by evolved sources of demand rising interest of global occupiers, workplace changes due to digitization of jobs, evolving need for flexibility, increased demand for domestic needs, rise in net absorption and Core + Flexi workplace strategies. The combination of these sources of demand, coupled with the supply influx of quality space is likely to result in the share of net absorption to rise from the current 60-65% to about 70-75% during 2019-20. The share of tech in overall space take-up in the country will remain in the range of 30 – 35% by the end of 2019.
o Supply trends: We expect development patterns to be more tech-tailored and anticipate a stronger pipeline in 2019. CBRE expects nearly 40 million sq. ft. of new office space to be released over the next twelve months. Almost 30% of this pipeline is expected to be in the SEZ space. There is also expected to be an impetus on “smarter” buildings – driven by the augmented use of tech for optimising space and costs.
o Rental trends: We expect rents to continue to grow across the key markets in Bangalore, Chennai and Pune, however, this growth is expected to taper across most cities. ‘Gateway’cities of Delhi-NCR and Mumbai would also see rental growth, however only in select locations. Also, a convergence between SEZ and non-SEZ rentals is expected in 2019.
LOGISTICS MARKET: ON THE PATH TO TRANSFORMATION
2018 was a remarkable year for the warehousing market as overall absorption during the year touched 24 million sq. ft., a growth of about 44% compared to the previous year. Majority of the demand was concentrated in Mumbai (23%), Delhi-NCR (19%) and Bangalore (19%), closely followed by Chennai and Hyderabad accounting for about 15% and 12% respectively. Following the expected trend, 3PL players, e-commerce and engineering & manufacturing firms drove demand during the year contributingabout 35%, 23% and 15% respectively. Markets which led rental appreciation during the year were Bhiwandi in Mumbai (23%), Western corridor in Hyderabad (20%), NH-6 in Kolkata (16%) and Northern belt in Chennai (11%).
Logistics Outlook for 2019
o Significant supply addition expected; the share of Grade A supply expected to increase in overall supply. While the overall supply (grade A and inferior grade) for the sector is expected to be almost 60 million sq. ft. till 2020, at least 22 million sq. ft. of this supply is estimated to be in the grade A category.
o Demand from e-commerce players may slow down in the short-term due to policy disruptions. However, in the long run, BTS properties to become more commonplace for such players.
o Favourable policy framework and government focus on infrastructure initiatives likely to spur further growth in the sector in 2019.
o Focus on building in-city logistics, grocery delivery and cold chain facilities to see more activity in the coming year.
RETAIL MARKET OUTLOOK: CONSUMER GROWTH DRIVEN
The Indian retail sector has been evolving at a fast pace in the past couple of years. Increasing urbanisation, evolving brand preferences, availability of technology and social media have been the driving factors behind this evolution. In 2018, nearly 5.1 million sq. ft. of new retail developments became operational across the seven major cities in the country. Supply was led by the Southern cities, with Hyderabad at the forefront; followed by Chennai and Bangalore. Smaller retail developments also became operational in Delhi-NCR and Kolkata during 2018.
Demand on the other hand has also been strong and the past couple of years have witnessed a divergence in the demand and consumption pattern of consumers in India. While fashion and apparel is expected to continue as key demand stream (value fashion, along with mid-range fashion is expected to drive retail sales), but it has also given way to categories such as F&B, multiplexes and entertainment centres, along with accessories amongst others.
Retail Outlook for 2019:
o Although nearly 10 – 12 million sq. ft. of supply is expected to come on-stream in 2019; demand is expected to outstrip supply. While changes in FDI norms for e-commerce may impact online sales in the short-term, it may also impact investor sentiment in the segment.
o However, despite uncertainty across the e-commerce segment, omni-channel retailing is here to stay.
o Diversification in demand to continue with expansion by various domestic and international brands across newer categories.
o Experiential retail and placemaking will be the key, landlords and retailers likely to use tech for studying consumer patterns and enhance customer experience.
CAPITAL MARKETS & LAND OUTLOOK: STABILITY TO ENSUE
During 2018, the commercial real estate investment market witnessed few large-scale deals which led to about USD 4.7 billion of investments. Transaction activity was led by private equity investors focusing on office and retail sectors, while local investors focused on investing in land parcels for RE developments. The inflow of long term, patient capital from private equity and other institutional players – especially in office and retail has provided the sector with stability that will ensure a steady growth curve.
The Capital Markets and Land outlook for 2019:
o The liquidity squeeze in the NBFC sector, besides government policies and focus on due diligence, will lead to consolidation in the sector.
o PE investments are likely to focus on completed and under-construction quality assets across the office, warehousing and retail segments; residential sector will continue to be dominated by debt funding.
o As the due diligence process tightens, the quality of loans is also anticipated to improve, however, as a result funding costs may rise.
RESIDENTIAL MARKET OUTLOOK: PATH TO RECOVERY CONTINUES
Post the policy reforms of 2017 such as demonetisation, RERA and GST, the residential market is absorbing the impact of these changes and is on the path to recovery. This led to a growth of about 15% y-o-y in new supply and 13% y-o-y in sales. As developers align themselves with structural policy reforms implemented in the past few years and with changing characteristics of demand, we can expect residential supply to improve in 2019. The residential market is better placed this year as speculation-led investment activity has reduced significantly and financial checks are in place to prevent over-gearing. In terms of segments, mid-end projects will still garner the major chunk of supply, followed by the affordable segment (owing to government incentives and increase in end-user demand). The uptick in launches is expected to be witnessed in Bangalore, Mumbai, Hyderabad and Chennai, whereas launches in Kolkata and Pune are expected to be stable.
The Residential Market Outlook for 2019:
o Supply- demand scenario is expected to improve, unsold inventory levels to further decline.
o Alternate assets such as co-living, student and senior housing will continue to garner greater interest from end-users and developers.
o Affordable housing will drive supply and demand, backed by several government reforms
o Alternate assets such as co-living, student and senior housing will continue to garner greaterinterest from end users and developers.
o In the affordable segment, developers are likely to draw up appropriate marketing strategies,phase-out launches and defend their margins by managing construction costs. Greater use of tech and tech-enabled construction techniques can assist in better execution of projects.