Despite the continued cyclical upswings and downswings of the COVID-19 pandemic, the Indian real estate sector has remained largely resilient. It is now showing signs of revival, on the back of India’s strong position as a driver of the global economy as well as promising growth projections across segments such as office, I&L, residential and alternative real estate segments.
This has been highlighted by real estate consulting firm CBRE South Asia in its report ‘Real Estate Market Outlook 2022 – India’ released at the CII annual real estate conference – ‘Reinvigorating the Real Estate Industry in 2022 & Beyond’. The report highlights key trends and projections for the Indian real estate sector for the year 2022.
The report says “In 2022, we expect the sector to leverage the government’s continued focus on infrastructure development and industrial growth, with segments such as logistics and manufacturing being the focal nodes. We also expect ESG to transcend sectoral boundaries and become central to business interests as investors, developers and occupiers imbibe health & wellness into their strategies while improving energy efficiencies and reducing their carbon footprint.
Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE, said, “The second wave of the pandemic was a blip on the Indian economy and by extension to the real estate sector. We have come a long way since then. Leasing activity across all sectors and segments has witnessed an uptick in the past 6 months and we expect this growth to continue into 2022. In fact, a few sunrise sectors such as I&L are expected to surpass pre-pandemic levels as well in terms of leasing as well as supply addition. We also expect the India market for alternative segments such as life sciences, etc. to mature further, enabling investors to diversify their portfolios as well as provide more investment opportunities.
Gross absorption in office space is expected to touch 45-47 million sq. ft. in 2022, a growth of about 13-14% from 2021. Technology firms would continue to dominate leasing in 2022 while flexible space operators, BFSI, engineering & manufacturing and life sciences segment are expected to contribute to the growth in office space take-up significantly. Similar to 2021, Bengaluru, Hyderabad and Delhi-NCR are expected to continue to drive transaction activity in 2022.
CBRE expects around 51-53 million sq. ft. of new office space to become operational in 2022, up by about 4-5% on an annual basis.
Physical offices are here to stay, along with hybrid working; occupier appetite for office expansion is strengthening.
Workplace strategies would evolve to suit the new role of the office, as it becomes a centre of collaboration and means to improve productivity levels.
Top trends
An unprecedented generational convergence is likely by 2030: for the first time in history, four generations would occupy the workplace simultaneously.
Proptech to lead CRE transformation in India by 2030: Six technologies that will dominate the real estate sector in 2022 include SaaS, Artificial Intelligence, Internet of Things, Robotic Process Automation, Virtual / Augmented Reality, and Blockchain.
Leasing activity is expected to remain strong in 2022 and touch 35-37 million sq. ft.; a growth of more than 20% on an annual basis. The continued expansion of e-commerce and 3PL firms (third party logistics) against the backdrop of macro-economic recovery and growing online retail penetration is expected to drive the sector. Further, next-gen logistics facilities are likely to dominate upcoming supply pipeline as warehouses grow taller.
Warehousing space take-up expected to rise further in 2022: Continued upgradation / expansion opportunities in tier-I cities, new market penetration in lower tier cities and the extension of local distribution networks in emerging logistics hubs will aid this growth.
CBRE expects about 32-34 million sq. ft. of new warehouse space to become operational in 2022. The regionalisation of supply chains across APAC is expected to benefit alternative manufacturing hubs including India.
Rental growth set to continue
Hyderabad, Mumbai, Ahmedabad, Chennai and Pune registered rental growth in the range of 10-20% and cities such as Kolkata, Bengaluru and Delhi-NCR recorded a 2-7% y-o-y increase. We expect rental growth to continue across cities in 2022, especially in investment-grade, tech-enhanced and strategically located assets.
Rise of Cold Storage (CS) facilities: CBRE Research expects CS capacity and stock in India to double over 2019-23 to touch 70-75 million tonnes and 1.4-1.5 billion sq. ft. respectively. E-grocery, food manufacturing and delivery sectors and life sciences to catalyse the growth
Retail – On a slow but steady recovery path. Although retail recovery was hampered by Omicron, we expect pent-up demand would spur activity across all consumption categories.
Expansionary demand is expected to strengthen this year: Demand from categories such as QSRs, supermarkets, electronics and consumer durables is expected to sustain.
Stores to be multi-functional, to move beyond “pure retail”: Omnichannel retail and hybrids between digital and bricks and mortar will become more visible. Stores may actually serve as a solution for supply chain issues by covering the ‘final 50 feet’ which is the most expensive leg of the logistics process.
Sharper focus on experience: It would become imperative for retailers and shopping centres to offer shoppers an experiential incentive to visit brick-and-mortar stores. Innovations such as thematic stores, promotional events, expanded display areas, novel F&B concepts will be key drivers.
Residential sector: On firm ground
Continued policy push, a revival in economic activity coupled with a low mortgage rate regime are some of the key factors driving residential growth. The strong sales momentum witnessed post Q3 2020 has provided developers an incentive to launch new projects / new phases in existing projects.
Capital values across mid-end and high-end segments are expected to witness an uptick in 2022 due to factors such as robust sales momentum and rising input material cost that could force developers to pass on the increase to homebuyers. However, asset pricing trends are expected to remain divergent across sub-segment types and within cities as the level of unsold inventory and growth in sales are expected to dictate capital value movement.
Mid-end and affordable segments to drive momentum: Traction expected in premium / luxury housing categories while a steady demand for housing units priced between ₹45 lakh and ₹1.0 crore is likely to push up the demand for affordable and mid-end segments in 2022.
Focus on larger unit sizes and plotted developments: With remote working and home-schooling likely to continue, factors such as larger homes, plotted developments with flexibility on configurations and ancillary amenities are likely to remain key focus areas for developers.
Investments
Investment activity is expected to witness an uptick in 2022, with investors likely preferring the opportunistic route. We also expect alternative investment funds to emerge stronger going forward. Total investments in 2022 expected to rise by about 5-10%, to reach around the pre-pandemic levels of 2019.
Mumbai, Delhi-NCR, Hyderabad and Bengaluru are expected to remain on investors’ radar in 2022, with major focus expected on office, development sites and I&L assets. With the emergence of tier-II cities as the new engines of warehousing demand, we are likely to witness investor demand for such spaces in these locations.
Investments in greenfield assets to grow: Since there are limited high quality / core assets that are up for sale in the market, we could see greater activity via the opportunistic route as investors rebalance risk and return in the post-pandemic era.
Alternative segments
Flexible spaces would continue to gain prominence in occupiers’ portfolios, with new ‘core+flex’ strategies emerging amidst portfolio expansion and hybrid working.
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Student accommodations / co-living is expected to see strong revival in activity with the reopening of universities and workplaces.
REITs: Operational and financial performance to witness strong recovery; additional REITs expected in the office sector.
Life sciences: A paradigm shift in life sciences real estate dynamics was recorded post the pandemic, leading to their share of office leasing to rise in 2021 - a trend we expect to continue in 2022.
During the event, CII also announced the election of Anshuman Magazineas the Chairman for CII (Northern Region) for financial year 2022-23.
