According to a recent report published by Colliers Research-RICS South Asia, Indian real estate has attracted investment transactions worth $2.4 billion in the first half of 2018. The investments are 26% up from the year ago period, with major investments being made in the commercial segment by such global players as Blackstone, Brookfield, Xander, etc.
Simultaneously with the increase in investments, the commercial real estate market is also witnessing structural changes in the way the projects are built, financed and managed.
“In 2018 and beyond, we believe the demand for office space will be led by technology, engineering, manufacturing, e-commerce, logistics and finance sectors, along with co-working operators. The growth in corporate real estate will however not be without its challenges,” said Nimish Gupta, Managing Director, RICS South Asia. “Technologies such as automation/artificial intelligence could replace traditional job roles in industries such as IT and BFSI. A loss in jobs and a change in the work culture are likely to have an impact on the way companies lease or buy office space.”
According to Colliers research the change in ownership from local developers to institutional investors and advent of REITs should lead to the institutionalization of the CRE in the next three years.
It expects around 120 mln sqft of gross office absorption over the next three years. The demand is likely to be well supported by robust supply pipeline of about 124 mln sqft of office stock in major Indian cities.
“Supported by a firm economy, we expect the office market to remain robust over the next three years, reflecting strong employment growth and economic reforms. However, we do not expect the absorption level to grow further since despite strong demand other factors such as the quest for workspace efficiency and the possible start of adoption of disruptive technologies such as Blockchain and Artificial Intelligence (AI) may hold down overall absorption volumes,” said Ritesh Sachdev, Senior Executive Director, Occupier Services at Colliers International India.
The limited availability of debt from domestic financial institutions and banks has led developers to look for private investment in the form of debt as well as equity. Traditionally, most equity in commercial real estate was in the hands of local developers, but in the last two years well-capitalized institutional investors have started acquiring premium Grade A assets and making strategic partnership with developers. The ownership and management of CRE is gradually shifting from the private developers to large sophisticated institutional entities.