The first half of 2021 has recorded a 33% increase in the investment in emerging asset classes compared to the first half of the previous year, led by data centres, according to a report titled Unveiling the Potential of Emerging Real Assets by Colliers published in partnership with industry body FICCI.
Over the last three years, emerging asset classes such as data centres, flexible workspaces and co-living spaces had done well but the COVID-19 pandemic had dented demand for flexible workspaces and co-living assets.
But it did give a boost to demand for data centres due to increasing dependence on the internet and increasing digitization, which is estimated to still increase exponentially over the next few years, per the report.
Post-Covid-19, Colliers expects to see growth in all these asset classes, hinging upon the re-opening of offices and educational institutes. Consequently, investors are taking notice and increasing their allocations, as they explore new avenues to diversify their portfolios and increase their returns.
Data Centres stock to double by 2023
India has about 1.2 megawatt per user of co-location DC capacity compared to Europe’s 19.1 MW per user DC capacity, providing a huge opportunity for data centre operators in the country.
Colliers expects total colocation data centre stock to reach 20 million square feet (1.8 million square meters) by 2023, led by local and global data centre developers, from 9.5 million square feet at present. Data centres can provide a net yield of about 17% per annum, which makes them an attractive investment alternative.
Flexible workspaces to account for about 5% of total office stock by 2022
As of June 30, 2021, the total flexible workspace stock in India stood at 30.7 million square feet. Given the continued effects of Covid-19, Colliers expects operators will expand at a slow pace and forecast flexible workspaces to lease around 3 million square feet (0.27 million square meters) in 2021, similar to 2020.
Thereafter, as occupiers and their employees return to formal workspaces, the demand is expected to increase for well-located, high quality and efficient flexible workspaces resulting in their occupying 4.7% of the total commercial office stock by 2022, the report said.
Attractiveness of co-living to revive post Covid-19
Colliers forecasts co-living inventory in India to rise 24% YOY to reach 400,000 beds by 2022, driven by investments from private equity players, developers and individual investors, who have invested around Rs 3.1 billion in top co-living operators during 2018-2021, inclusive of all stages of funding.
The asset class can generate rental yields as high as 4% to 6%, compared to 1% to 2.5% in traditional residential assets. We believe that investors are looking at these asset classes with greater rigour, as they look to build a comprehensive portfolio of assets across the sector, the report said.
“The millennial population will continue migrating to other towns and cities for education and employment despite the emergence of the work/study from home because it has become increasingly clear that these will not become permanent practices. We currently witness a muted demand for offices due to restrictions on operations for health and safety reasons,” said Ramesh Nair, Chief Executive Officer, India & Managing Director, Market Development, Asia at Colliers.“Most employees are keen on working from offices for at least some days a week. Similarly, not all forms of education can be imparted online, and, hence, students are increasingly looking at returning to their education campuses in other cities. Therefore, we foresee potential for well-planned and well-managed facilities that can cater to the work and housing needs of the Indian workforce that is no longer content with just well-equipped physical spaces but wants a nurturing, collaborative, and shared ecosystem,” he said.