Investors continue to choose commercial real estate

According to a JLL report, gross lease volume increased by 138 percent quarter-over-quarter to 14.7 million sq ft in the third quarter of 2020.

Investors continue to choose commercial real estate

The economy is expected to return to normal now that more than 24% of the country's population has received at least one dosage of the vaccine. The country's GDP growth rate increased to 1.6% in Q1/2021 from 0.4% in Q4/2020, indicating a steady recovery. Even though Oxford Economics lowered its 2021 GDP growth projection to 9.1% from 10.2%, economic activity showed indications of revival in April 2021, as the Index of Industrial Production (IIP) increased by 134% Y-o-Y. The real estate industry, especially the commercial component, which may be considered the backbone of economic activity, has begun to show indications of recovery as well.

More than 250 auxiliary industries are linked to the real estate industry, and many businesses rely on real estate to build commercial structures to support their operations. The sector has been working overtime to meet the demand for commercial properties around the country. The gross lease volume increased to 14.7 million sq ft in the third quarter of 2020, according to a JLL study, a massive increase of 138% Q-o-Q.

Higher mall opening hours in several locations, a resurrection of food and beverage demand, and increased spending during the festival season all contributed to the quick rebound that began in the third quarter of 2020. Investment-grade retail asset consumption swiftly recovered to pre-COVID Q1/2020 levels during Q1/2021, according to a Savills – Asia Pacific Investment Quarterly Q2 2021 study.

Due to its growth possibilities and assured financial returns, commercial real estate will continue to be the preferred option of investors. An innovative and secure approach to invest in commercial real estate, fractional investing, has gained popularity in the industry and is being explored by many customers. The residential real estate market is losing its appeal to investors. Inflows of private equity into the commercial sector rose in 2017 and have been consistent since then. Despite the pandemic-induced slowdown, the first half of 2021 witnessed about 41% of the investment inflows seen in the whole year of 2020, showing that investor confidence has remained strong, according to Savills.

A revived interest in the retail sector by private equity institutional investors, as well as the attractiveness of commercial office properties, are two themes that have emerged this year. Even if the year 2021 is not immune to pandemic impacts, the groundwork for a sector-wide recovery has been prepared. The recent IPOs of Indian REITs are projected to boost developers' capacity and desire to create additional commercial properties, resulting in increased liquidity inflows into the commercial real estate asset class.

Meanwhile, the continued end-user emphasis of the residential market, as well as the accompanying re-investment cycle concerns, would stimulate more commercial real estate investment. To assure income stability, investors are more inclined to focus on assets with higher yields. While office assets are expected to continue to attract the most investment, logistics and data centres are expected to gain in importance. Retail and hotel projects may gain traction as the economy recovers.

Source: IIFL Securities