What are the factors pushing the commercial Real Estate Sector?
The need for new office premises has been negatively impacted by the pandemic due to the long-term shutdown of offices and the shift towards working from home. Commercial real estate, meanwhile, is rebounding as strongly as ever now that the workforce is returning and the great resignation is coming to an end. This industry is one of the fastest expanding real estate categories as many MNCs and large businesses have recently reopened their offices or adopted a back-to-office plan. The most recent analysis from Knight Frank India predicts that the commercial real estate market would grow steadily and sustainably in 2022. As a result of the markets' upbeat mood, commercial real estate is becoming more and more popular among major firms.
In addition, there are a number of other factors driving the growth of the commercial real estate industry in India, including the introduction of digitalization, rising tenant confidence, and relaxed COVID standards. Furthermore, the development and tenancy of commercial real estate has been influenced by general economic growth, transparency, and competence. However, these are not the only elements influencing its expansion across the board. Let's talk about the factors driving the development of commercial real estate.
Reasons for the commercial real estate sector's growth :
The demand for commercial real estate has increased as a result of the booming economy and the returning workers to offices, as was previously said. But another issue that is becoming more significant is the rise of co-working spaces. Innovative office space ideas, business-friendly efforts, and top-notch amenities for tenants are further factors driving the increase in demand.
Due to the removal of limits connected to the pandemic, vacancies in Grade A offices are now returned to being stable compared to the previous two years. JLL predicts that due to rising demand, the Grade A office market would reach 1.2 billion square feet by 2030.
Commercial real estate leases are typically long-term, and every three years, the rental rate increases by 15%, making it profitable for developers. This has fueled the creation of a number of new office space projects that are currently under construction and will be open soon. For instance, Gurugram sector 59 will have 550,000 square feet of grade A+ office space for corporate leasing by December 2026 thanks to construction by Tata Realty.
Commercial Trends :
A pandemic-driven course correction is forcing significant changes in the way that buildings will be used, evaluated, and appraised in the present and the future in the Indian commercial real estate industry. Several patterns have evolved as a result of this industry's remarkable recovery. Businesses are modernizing their real estate investment holdings to lessen the consequences of pandemics, which is causing a rise in leasing activity. Similar to how the hybrid working model allowed the requirement for leasing dynamic office spaces with smart working spaces, it supported the expansion of this sector.
According to a research by CBRE, South Asia, lease activity increased 97% year over year to reach 11.4 million square feet, indicating a solid rebound in the Indian office market. Technology drove 34% of the lease growth in Bangalore, Chennai, and Delhi-NCR, followed by BFSI companies (17%), flexible space operators (13%), E&M (12%), and consulting and analytics (11%). Massive corporations frequently rent office space rather than own it. As an illustration, Amazon has leased 700,000 square feet of office space as part of the "Downtown Gurgaon" project. Additionally, the massive South Korean electronics company Samsung has leased 357,000 square feet in Noida for Rs 278 crore, or around Rs 2 crore each month.
In recent years, managed office space has become more popular among businesses. Managed office spaces offer flexible pricing structures that are less expensive than owning an office and incurring extra, unexpected costs. It is a better option because the scalability options are easily accessible and assist with any type of expansion without any effort. In addition, by renting these office spaces, the businesses can access the shared space's basic utilities and other services for a single monthly fee.
Hub and Space working paradigms, an emphasis on technical improvements, economic growth, and significant institutional investment will all contribute to a strong increase in commercial real estate. The real estate industry as a whole will rely on this sector to support it and help it through the recovery phase. Additionally, India is becoming a market for multinational shared-service companies to extend their footprints and operations. Even though rising building costs are anticipated, they will only profit existing assets and open the door for future development.
Despite the economy's woes, the commercial real estate sector as a whole is optimistic due to the numerous advantages for all parties involved. CREs are now focusing on Tier-II and Tier-III cities since they are quickly urbanizing and because many firms are moving there to cut expenses. The sophistication of commercial real estate is also rising as a result of the incorporation of New Age technologies, including sensor-activated disinfectants, retina scanners for admission, digitized ventilation systems, and more.
