Commercial office segment dominates, private equity players continue to acquire income yielding Grade A commercial assets to ramp up their REIT ready portfolios: Colliers Research
Commercial real estate is likely to dominate real estate investment in coming years. India witnessed investment transactions worth Rs 15,600 crore (USD 2.4 billion) in the first half of 2018, up 26 percent compared to last year (USD 1.9 billion), says a report by Colliers Research-RICS South Asia.
Global players that dominated the commercial segment include Blackstone, Brookfield, Xander in the first half of 2018. With increasing investment, the CRE market has also started witnessing profound structural changes in the way commercial real estate is built, financed and managed.
According to the report titled Opportunities in a Changing World: Making the Most of an Uncertain Environment, the change in ownership from local developers to institutional investors and advent of REITs should lead to the institutionalisation of the CRE in the next three years.
According to Colliers Research about 120 million sq ft (11.2 million sq m) of gross office space will be absorbed in the next three years. The demand is likely to be well supported by robust supply pipeline of about 124 million sq ft (11.5 million sq m) of office stock in major Indian cities.
“In 2018 and beyond, we believe the demand for office space will be led by technology, engineering, manufacturing, e-commerce, logistics and finance sectors, along with co-working operators. The growth in corporate real estate will however not be without its challenges. Change in global policies, protectionist trading positions taken by some countries and a resultant fluctuation in global growth are already affecting the way occupiers lease or buy office space," said Nimish Gupta, managing director, RICS South Asia.
"We have seen the emergence of co-working spaces in a big way. It represented about 8 percent of office space absorption in 2017 compared to the previous year's share of 3 percent. Technologies such as automation/artificial intelligence could replace traditional job roles in industries such as IT and BFSI. A loss in jobs and a change in the work culture are likely to have an impact on the way companies lease or buy office space,” said Gupta.
Despite the recent strong demand for office space, macroeconomic factors such as government policies, automation and AI have started significantly disrupting the Indian CRE market. CRE heads are increasingly focused on workspace efficiency and cost-effectiveness while keeping flexibility, collaboration, adaptive designs and employee retention in mind.
“Supported by a firm economy, we expect the office market to remain robust over the next three years, reflecting strong employment growth and economic reforms. However, we do not expect the absorption level to grow further since despite strong demand other factors such as the quest for workspace efficiency and the possible start of adoption of disruptive technologies such as Blockchain and Artificial Intelligence (AI) may hold down overall absorption volumes”, says Ritesh Sachdev, Senior Executive Director, Occupier Services at Colliers International India.
As per the report, the dynamism in the business environment will probably lead to uncertainty in real estate requirements. Both occupiers and developers need to work together to find optimal solutions that can create a win-win situation. The three factors driving the changes in today’s workplace requirements include:
It is also estimated that by 2025, millennials will represent 75 percent of the global workforce. We expect the rising millennial quotient in companies to influence the layout and design of office space, as millennial (Gen Y and Gen Z) staff are highly conversant with technology. To attract and retain talent, it is critical to provide innovative built environments in tune with the expectations of employees.