Commercial Real Estate in India: A Sector on the Rise

Commercial real estate (CRE) is a term that refers to properties that are used for business purposes, such as office buildings, retail malls, industrial parks, hotels, and data centers. CRE is an important segment of the Indian economy, as it contributes to employment, infrastructure, urbanization and foreign investment.

According to a report by Construction Week, the COMMERCIAL REAL ESTATE sector in India is expected to grow at a compound annual growth rate (CAGR) of 13% approximately.

The demand for office space has been and is still on the rise, driven by the growth of sectors such as information technology (IT), banking and financial services (BFSI), e-commerce, and start-ups. According to CBRE India, the office market witnessed a robust recovery in 2021, with gross leasing reaching 42.5 million sq ft, up by 18% year-on-year. 

The top cities that accounted for the majority of the leasing activity were Bengaluru, Hyderabad, Delhi-NCR, Mumbai and Chennai. The office market is expected to maintain its positive momentum in 2022, with an anticipated pickup in long-term decision-making by occupiers.

Another segment that has shown strong resilience and growth potential is the industrial and logistics (I&L) sector. The I&L sector has benefited from the rise of e-commerce, especially during the pandemic, as well as the government’s initiatives to boost manufacturing and infrastructure.

According to JLL India, the I&L sector recorded a leasing activity of 33 million sq ft in 2021, up by 64% year-on-year. The sector is expected to witness a strong leasing activity in 2022 as well, with next-generation logistics facilities dominating the supply pipeline.

The retail sector, which was severely impacted by the pandemic-induced lockdowns and social distancing norms, has also shown signs of recovery and revival. According to CBRE India, the retail sector witnessed a leasing activity of 3.6 million sq ft in 2021, up by 75% year-on-year2. The demand for retail space was driven by categories such as food and beverages (F&B), fashion and lifestyle, entertainment and hypermarkets.

The retail sector is expected to witness a pent-up demand across consumption categories in 2022, as well as partnerships between digital and traditional retail brands to accelerate.

The residential sector, which had been facing a slowdown for several years due to issues such as oversupply, liquidity crunch, and regulatory changes, has also bounced back strongly in 2021. According to JLL India, the residential sector recorded a sales volume of 207,551 units in 2021, up by 61% year-on-year.

The sales volume was driven by factors such as low interest rates, attractive pricing and discounts, flexible payment plans, and increased preference for home ownership. The residential sector is expected to maintain its strong momentum in 2022, with divergent trends in capital value appreciation likely.

The investment activity in the CRE sector has also picked up pace in 2021, despite the challenges posed by the pandemic. According to JLL India, the CRE sector attracted an investment of $6.27 billion in 2021, up by 88% year-on-year. The investment activity was led by sectors such as office, I&L, retail and data centers. The investors included domestic and foreign institutional investors, private equity funds, sovereign wealth funds, pension funds, and REITs. The investment activity is expected to witness an uptick of 5-10% in 2022, with ESG criteria becoming paramount during due diligence.

Some of the emerging segments that are expected to gain prominence and traction in the CRE sector in 2022 are flexible spaces (co-working and co-living), data centers (captive and colocation), student accommodation (purpose-built and managed), life sciences (research and development and manufacturing) and REITs (office as well as retail and I&L). These segments are expected to offer new opportunities for occupiers and investors alike.

The CRE sector in India is undergoing a transformational change due to factors such as technology adoption (artificial intelligence (AI), internet of things (IoT), cloud computing), sustainability initiatives (green buildings, renewable energy sources), changing consumer preferences (hybrid working models) and regulatory reforms (Real Estate Regulation Act (RERA), Goods and Services Tax (GST)). These factors are expected to shape the future of the CRE sector in India and make it more resilient, competitive and attractive.

Rohit Mishra 

(Real Estate Consultant)

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