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Office market to soften in 2020; residential market to see upswing in second half: Colliers

Bengaluru and Hyderabad are expected to be two of the three fastest-growing Asian cities between 2020 and 2024

Representative image
Representative image

Gross absorption of commercial real estate is expected to touch 54.3 million square feet in India’s top seven cities, while the residential sector, which has been experiencing slow growth, may see housing sales pick up in the latter half of 2020, especially from end-users, a new report said.

“Colliers recommends occupiers to focus on optimising office space by studying user patterns, and by incorporating a flex and core model that suits their business needs. Flexible workspace operators should maintain a tight ship on operations and finances, as investors become more stringent with due diligence” says Sankey Prasad, Managing Director and Chairman at Colliers International India.

As per Colliers International India’s latest report India Market Outlook 2020, the top trends that will impact the real estate sector are:

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Space efficiency

During 2020, gross absorption is forecast around 54.3 million sq ft in India’s top seven cities. In 2019, the pan-India gross absorption was 58.6 million sq feet. It feels that low GDP estimates should have some bearing on inquiries by mid-scale occupiers.

“With the tepid business confidence, we foresee occupiers cautious on rapid expansion. Occupiers must focus on optimising space by using technology to study user patterns to use space efficiently and incorporating a flex and core model that suit their business needs,” Colliers said.

Bengaluru and Hyderabad are expected to be two of the three fastest-growing Asian cities between 2020 and 2024, and that should open further opportunities for occupiers, developers and investors. While Bengaluru will be frontrunner in terms of demand, Hyderabad is fast climbing up the ranks, it stated.

Residential sector to pick up in latter half of 2020

The residential sector has been undergoing a prolonged demand slowdown since 2013. It expects housing sales should pick up in the latter half of 2020, especially from end-users. Colliers cited lower interest rates and government reforms like the Tenancy Act that has the potential to unleash build, lease and operate properties in India, wherein properties are built for rent and not for sale, as its rationale for the same.

New age workspaces to gain traction

By 2021-end, GenZ should constitute one-fifth of the Indian workforce. It expects occupiers to rapidly adopt workplaces with a collaborative and creative thrust.

As per a recent survey, 60 percent millennials in India seek jobs that allow flexibility, with over 52 percent stating that their organisation might not have the adequate culture to provide flexible working options.

“As a younger workforce enters the job market and as technology evolves, we foresee more occupiers adopting new approaches to workspace design, offering options such as experiential workplace and flexible workspace options to retain talent. To retain talent, occupiers are providing dynamic workplaces, replete with collaborative spaces, break-out zones,” the report said.

Flexible workspaces to see consolidation

Flexible workspaces have grown rapidly in India since 2017, with the sector garnering 18 percent share in total leasing in 2019 (leasing around 11.2 million sq ft in 2019). In 2020, it is expected that the flexible workspace market should start consolidating as larger flexible workspace operators with financial discipline acquire smaller companies.

Investments to rise in opportunistic assets and logistics segment

With funding proving to be a challenge for residential projects due to low liquidity among NBFCs, there may be opportunities for developers with regard to last mile financing.

“We are already seeing investors evaluating distressed assets, which typically already have approvals in place and commencement of unit sales. In such a scenario, we expect developers offloading assets at reasonable valuations. We can expect greater investor interest in distressed assets, especially at the last-mile funding stage as some developers struggle with cash flow,” the report said.

 

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First Published on Jan 24, 2020 03:05 pm
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