The net absorption for office space by the end of 2022 is expected to touch 39 million sq ft, residential sales around 200,000 units, and warehousing and light manufacturing may surpass 40 million sq ft, real estate consultancy JLL said in a report released on December 19.
Net absorption in office space for 2022 is likely to be up around 50 percent year-on-year with 2023 expected to further build on the gains of this year. Supply addition and forecast pipeline remain strong with institutional share at 30 percent; headline vacancy is likely to inch up within a tight range.
The net absorption in 2023 for office space is also expected to be at around 40 million sq ft The net absorption for the first nine months of 2022 (Jan-Sep 2022) is at a three-year high of 30.3 million sq. ft and on track to match the five-year average (2015-2019) for the full year.
India’s Grade A office stock’s green certifications are expected to surpass 45 percent by end of 2022 and likely to inch to the 50 percent mark by end-2023, said the report, ‘The 2022 story: Indian real estate’s rise from the lows’.
Core market vacancies have remained in single digit and are expected to remain so, though short-term vacancies may inch up as demand momentum softens a bit in the wake of global headwinds.
There is a slight decline in space take-up by tech firms, but manufacturing, healthcare and flex are major movers in 2022 and are also expected to remain big drivers of office demand in 2023. The tech as well as the Global Capability Centres (GCC) story will continue to support the office market momentum in 2023 as well, it said.
“The year 2022 has been the year of a sustained turnaround for the Indian real estate sector, after two COVID-impacted years. The Indian office markets are on track to record net absorption levels like the pre-COVID five-year average with a potential upside next year clearly outlining the resilience amid India’s dominance as the outsourcing/offshoring hub of the world and its innovation ecosystem creating new office demand,” said Samantak Das, chief economist and Head of research and REIS (real estate intelligence service), India, JLL.
“We will keep our eyes on the evolving headwinds, with inflationary pressures and global growth in our rear-view mirror. The office, residential and warehousing segments are all on track to improve further on their 2022 performance and we will watch the next year unfold with anticipation. For real estate, concrete ESG actions and asset pricing will also be key defining elements in the next year,” he said.
Residential affordability may be impacted
The residential segment has witnessed the smartest and the fastest recovery with annual sales in 2022 expected to surpass 200,000 units, the highest in over a decade and near 2010’s sales of 216,762 units.
Quarterly residential sales were over 50,000 units in each of the first three quarters of 2022. As incomes get adversely impacted by inflationary pressures and global headwinds, the affordability synergy prevailing in the last six months has been challenged. While affordability is likely to be impacted, the slowing momentum looks to be temporary with the country’s focus on economic growth along with the likely easing of inflationary pressures, it said.
The trend of launching plotted developments and independent floors is expected to grow with buyer preferences more toward such products. Developers also get the advantages of faster execution and quick inventory liquidation with such products.
Apart from the affordable and mid-segment, the traction is expected to take place in the premium segment as well backed by launches by established developers in prime locations. Moreover, there is rising demand for bigger homes with good amenities. It is expected that the market share of established and credible developers will increase further with buyers preferring developers with a proven track record, robust financial strength and execution capability.
The sector is expected to witness consolidation at a faster clip with more joint ventures and development management contracts likely to be seen.
Developers have moved away from their own aspirational/dream projects to more relevant and customer-oriented ones. Developers’ strategies include adopting technology to enhance efficiency, focusing on products that are generating demand and incorporating the concept of sustainable and green buildings to consider the health and well-being aspects of the prospective buyers, it said.
Flex space take-up goes up
With the return to work trend gaining momentum, real estate planning will centre around talent mobility, healthy workplaces and employee value propositions. The nine-month flex seat take-up is already at an all-time peak of around 95,000 seats, with the year likely to end with more than 120,000 seats. Similar growth momentum is expected in 2023 with flex integral to workplace strategy, return to work and creating new-age offices allowing for zero capex spend for a fully managed, ‘space as a service’ offering.
Warehousing and light manufacturing net absorption may touch around 44 million sq. ft in 2023
The warehousing and light manufacturing demand in 2022 is estimated to cross 40 million sq ft by 2022-end, surpassing the levels of 2021. Moreover, the market momentum is expected to continue in the next year with the net absorption projected to reach around 44 million sq ft in 2023. The demand in Grade A space has increased, contributing more than around 65 percent of the total demand in the market.
In the year 2022, there is increased interest from institutional developers and investors in India’s warehousing market. This has led to the new supply in the market, especially Grade A space.
Rents are expected to grow at around 4-5 percent annually with the increasing demand from specialised manufacturing sectors, Third-party logistics (3PL), and retail companies that require technically specialised facilities. As Grade A spaces are likely to be favoured by top international and domestic occupiers, the rent growth of Grade A properties is expected to be higher than that of Grade B ones.
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