Evolving demographics, shifting social norms, a surge in entrepreneurship, increasing digitization and a hybrid working culture have significantly reshaped the patterns of real estate consumption, prompting the demand for fresh segments.
Over the years, residential real estate has been the only recall factor when one thinks of real estate in India. However, the fascinating expansion of the Indian real estate landscape in recent years has ensured that residential and real estate remain anything but synonymous. The prolonged period of macroeconomic and geopolitical uncertainties, and the comparatively slower growth due to the pandemic has redirected attention away from conventional residential real estate towards newer, emerging ones. Evolving demographics, shifting social norms, a surge in entrepreneurship, increasing digitization and a hybrid working culture have significantly reshaped the patterns of real estate consumption, prompting the demand for fresh segments.
India’s real estate sector showcases innovation and adaptability through the rise of alternative asset classes. Forecasts suggest a remarkable surge, with the sector projected to expand from $477 billion in 2022 to an estimated $5.8 trillion by 2047, as per a joint report by Knight Frank and the National Real Estate Development Council. This exponential growth is set to make the real estate industry a significant contributor, comprising over 15% of India’s total economic output in the coming decades, marking its increasing prominence in the country’s economic landscape.
The Indian OFFICE SPACE market has showcased resilience and stability, standing strong amidst uncertainties. It is anticipated to undergo significant evolution, welcoming changes, and attracting long-term institutional investments. Diversification is a notable trend, with growing industries contributing significantly to office space demand. Domestic entities have become influential demand drivers, marking a substantial shift in market dynamics amid ongoing global volatility. Global Capital and interest of the retail investors in this segment has been evident with the three listed REITs and flurry of smaller fractional ownership entities, and now the SEBIs introduction of micro-REITs is expected to fuel wider investor interest.
The top eight markets in India witnessed office transactions totaling 16.1 million square feet, marking a significant 17% year-on-year growth in Q3 2023. This resilience reflects positively on India’s economic environment, fostering sustained interest and activity within the office real estate sector.
Local companies, particularly in the technology, BFSI, engineering, and manufacturing sectors, are increasing their office space needs in major cities. Bengaluru leads, followed by Delhi-NCR, Chennai, and Hyderabad, expected to drive office space absorption. Mumbai, Pune, and Kolkata also anticipate consistent uptake. Global Capability Centers (GCCs) on the other hand find the talent in India and the cost of office space attractive to grow their operations here. This has further aided the growth of the office market.
Additionally, global and domestic tech firms are eyeing expansion into Tier 2 markets due to improved infrastructure, skilled talent pools, and competitive rental rates. These cities collectively accounted for 57% of office space demand in 2023, showcasing their economic vibrancy, especially in IT, tech startups, and other growing industries.
RETAIL SPACES are evolving into immersive hubs, reflecting a shift in investor perspective. They now prioritise engaging consumer experiences over mere transactions. Notable instances, like Apple’s flagship store in Mumbai and the successful launch of Bengaluru’s Mall of Asia, highlight this shift. These spaces play a vital role in the economy, enabling businesses to showcase products and services. India’s retail sector has transformed with the emergence of malls, high-street stores, and e-commerce platforms, catering to diverse consumer needs and reflecting evolving lifestyles and consumption patterns. Interest in retail spaces is visible on the ground, in the malls and high streets as also with the response to the initial public offering (IPO) of the first-ever retail REIT on the equity markets.
The increasing prevalence of e-commerce and quick commerce businesses in India is anticipated to bolster the demand for WAREHOUSES. This surge in demand is driving real estate developers to explore opportunities within the warehousing sector. Additionally, the shift in consumer behavior towards online shopping has further fueled the need for warehouses across the country. As a result, there’s a notable increase in the requirement for modern, well-equipped warehouses to support the expanding logistics and supply chain networks in India.
In the aftermath of the pandemic, CO-WORKING SPACES, initially designed for startups, have been attracting both large corporations and medium-sized businesses. They offer cost-effective infrastructure and business opportunities, serving as adaptable alternatives to traditional offices. These setups cater to millennials and gig workers, providing open work environments that help reduce business overheads while focusing on enhancing enterprise value.
In India, the DATA CENTERS market holds significant potential for expansion. Recent policy initiatives such as the Data Protection Bill and Draft E-commerce Policy aim to fortify the country’s regulatory landscape. Encouraging the establishment of data centers can act as a catalyst for sectoral growth, while the increasing adoption of 5G and Internet of Things (IoT) in India promises new avenues for development.
The introduction of online streaming services and the government’s push toward digitisation are anticipated to further drive the demand for data centers. Industry projections suggest that India’s data center outsourcing market, presently valued at nearly US$ 2 billion, is poised to expand at a compound annual growth rate (CAGR) of 25%, reaching US$ 5 billion by FY 2023-24.
India’s ambitious journey towards becoming a $5 trillion economy, from the current $3 trillion GDP mark, promises a surge in the workforce. As a result, the digital revolution and the necessity for data onshoring have opened up intriguing opportunities, notably in the realm of data centers. Also, recent announcements, like the establishment of an international university in GIFT City, Gandhinagar, signify the growing need for infrastructure, particularly in data centers.
The Colliers India study highlights the rising demand for PURPOSE-BUILT STUDENT ACCOMMODATIONS (PBSAs) in the country. The projected increase in higher education student relocations, expected to reach 31.1 million by FY 2035-36, from 11.3 million in FY 2021-22, signals a substantial surge in the student population. India’s youthful demographic and growing enrollment in higher education are driving the need for quality accommodations close to educational hubs.
The escalating enrollment rates underscore the critical need for student housing. The focus on education and student-centric amenities has amplified the demand for PBSAs. With a growing student population, particularly in metropolitan areas, there’s a demand for specialized, comfortable, safe, and convenient housing options. Recognising the potential, startups are aiming to offer high-quality accommodations for students.
Separately, the consistent inflow of international investment in the Indian real estate sector has sparked a significant shift, prompting real estate developers and investors to introduce Real Estate Investment Trusts (REITs). Since 2019, four REIT-equity issues have raised $2.2 billion from public markets. The momentum has been pretty strong, as retail spaces, recognising the wave of change, swiftly joined the boom. A retail REIT made its entry into the public markets in 2023, reflecting a broader diversification within the real estate sector.
The dynamism and growth potential of the non-residential real estate sectors not only contribute to the overall real estate market but also reflect the evolving needs and aspirations of a progressive society. The sector’s adaptability to changing market dynamics and its alignment with evolving consumer needs position non-residential real estate in India for sustained growth and resilience in the future.
As India continues on its path of economic development and urbanisation, these segments are likely to play an increasingly integral role in shaping the country’s real estate landscape offering many more opportunities to the consumer, the developer and the financial investor.
Credits: By Sarosh Amaria, Financial Express