Commercial real estate growth prospects appear strong in H2 2021

With the decline in Covid cases, residential sales have started rising again, and along with that commercial real estate has also started showing signs of revival.

Commercial real estate growth prospects appear strong in H2 2021

In recent months, the second wave of the pandemic, like the first, has affected both the residential and commercial real estate markets. However, because developers were more prepared this time, the damage was minimal. Thankfully, with the decline in Covid cases, residential sales have started rising again, and along with that commercial real estate has also started showing signs of revival.

Commercial real estate, in reality, is gaining traction in the country's major cities, owing to the IT/ITeS industries. According to a recent JLL study, India's net office absorption in the second quarter was 4.39 million square feet, up 32% year on year in key cities. “As a result of the national lockdown in Q2, net absorption fell by 16% compared to the Q1. However, the decline was smaller than the 61% seen during the same period last year, when the first wave of the pandemic struck, indicating the market's increased resilience,” according to the report.

According to an Anarock study, 7,400 office leases, totalling 90 million square feet, are due for renewal in the top six cities in 2021, because many IT businesses are recruiting as a result of the pandemic's general business growth. “This speaks favourably for total office space demand in 2022 and 2023 when we could see a gradual return to normalcy, accompanied by the newly recruited workforce. The IT/ITeS industries are the most important drivers of overall leasing activity in the major cities. These companies' mass recruiting will have an impact on demand for high-quality office space,” the report states.

According to the 29th Edition of Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index Q2 2021, the prognosis for the commercial office market was likewise positive in Q2 2021, for both leasing and rents, similar to the future attitudes of real estate sector stakeholders. Offices have begun to reopen across cities after weathering the lockdown-induced slowdown in the second quarter. Stakeholders anticipate a pick-up in office market activity in the coming six months, buoyed by the removal of lockdowns and loosening of mobility restrictions since June.

A consolidation trend and expansion of satellite offices following the hub and spoke model will drive demand for office or scattered commercial portfolios,” says Dr Niranjan Hiranandani, National President, NAREDCO, and MD, Hiranandani Group.

The majority of developers are optimistic about the commercial market's future growth prospects. “The leasing market in Delhi-NCR is expected to increase by 20-25% in 2021, with the majority of activity taking place in the second half of the year. Technology, BFSI, consultancy, and manufacturing tenants are expected to drive demand. There is an 8.5 million sq ft supply pipeline in the Delhi-NCR region, with Gurugram expected to finish over half of it and Noida the rest,” says Sachin Gawri, Founder and CEO, Rise Infraventures Ltd.

The rapid recovery that began after the third quarter of 2020 was aided by increased mall opening hours in several locations, a revival of food and beverage demand, and increased spending. Commercial real estate may continue to be the preferred choice of investors due to its growth potential and guaranteed economic returns.

We have seen a huge jump in commercial project demand in Noida over the last year, especially after Covid 2020. And then there's 2021. Economic activity began picking pace in June 2021, after the initial shocks of April and May, owing to declining infections and modest relaxations in lockdowns, both of which are critical for increasing employment and income stability. The fact that people are turning to real estate to help them stabilise their finances is encouraging,” says Ajendra Vikram Singh, VP-Sales at Spectrum Metro.

Individual and institutional investors are finding commercial real estate to be a far more appealing investment option. In recent years, private equity inflows into the commercial market have increased. According to a Savills analysis, investment inflows in the first half of 2021 were roughly 41% of those in the full year of 2020, indicating that investor confidence is still high.

Office leasing fell to a six-year low in the first half of 2021. The second half of the year, however, looks promising for both the office and retail segments, with increased vaccination coverage and economic activity gradually returning to normalcy. PEs have shown a keen interest in the office and retail segments, indicating that this asset class will remain stable in the future. While an immediate shift in demand is unlikely, vacancy levels are expected to fall in the coming quarters as physical offices reopen and mall visitors return. According to recent reports, consumers intend to increase discretionary spending,” says Omaxe Ltd's Siddharth Katyal, Director (Planning & Strategy).

Even if the year 2021 is not immune to pandemic effects, the foundation for a sector-wide recovery has been laid. “Indian REITs' recent listings are expected to increase developers' ability and desire to build more commercial properties, resulting in increased liquidity inflows into the commercial real estate asset class. Existing lease collections were largely unaffected, and collecting the billed rentals was not difficult. After this Unlock, the scenario will be different since offices will continue to function following vaccination and will be more likely to follow COVID policy to minimise additional business disruptions. As a consequence, we expect significant leasing activity in the latter six months of the year,” says Bhumika Group MD Uddhav Poddar.

Source: Financial Express