Despite several headwinds having had repercussions on the global economy, India's commercial real estate market remained well-positioned, registering robust growth and heralding bullish sentiment for the segment over the next couple of years. Growing urbanization, the country's resilient economy, government policies, and expansion of domestic and international businesses are key factors that have cranked up demands in commercial real estate comprising office spaces.
India Ratings and Research (Ind-Ra) expects aggregate supply will remain steady at 7 to 9 percent on an annualized basis in fiscal 2024. Tracking global sentiment around commercial real estate, the report of the Royal Institution of Chartered Surveyors has endorsed that India has had a high demand for commercial space while the real estate market is struggling in the US and Europe. As rental demand continues to move northward, investors can tap the potential of the Indian real estate business by analyzing the dynamics of the commercial segment in the market and earning favourable returns. Commercial properties are seen as force multipliers that buttress the growth of the real estate ecosystem.
In recent years, office space has gained more traction among other verticals of businesses. According to a report published by Colliers and Qdesq, more than 60 million square feet of office space is likely to be absorbed by 2023 in both metro and non-metro locations. India's six major cities including, Delhi-NCR, Bengaluru, Chennai, Hyderabad, Mumbai, and Pune, have witnessed office space rising 16 percent Quarter-on-Quarter to 14 million square feet in the first quarter of 2023, according to a recent report published by Savills India.
Demand for Grade-A offices continues to soar with each passing quarter. IT sector and business process management are zooming out their footprints and the hiring process is going on in full swing. Also, many multinationals are establishing their headquarters and have adopted back-to-office plans, which have driven demand for high-quality office space across cities. According to an industry report the office space has seen a 23 percent Q-o-Q increase in new supply infusion, which pegs at 13.1 million square feet in Q1 2023. Industry and market experts anticipate the gross office space absorption in 2023 could go to the tune of 48.5 million square feet, while annual supply infusion may stand at 61.5 square feet.
The growth in demand for office space is also fuelled by the strong credentials of the Indian economy, solidified government initiatives, FDI investments, NRI inclination, and strong ROI. The rise of the e-commerce industry and the emergence of India as an international IP power have resulted in demand for office space. The market analysis reflects a strengthened outlook for the office space segment and as per an industry report Grade A office market would reach 1.2 billion square feet by 2030 owing to soaring demand.
India has liberalized its foreign direct investment policies, allowing easier access for global investors in the real estate sector. Foreign institutional investors and private equity funds are increasingly participating in Indian commercial real estate, further boosting the market. Despite prevailing global concerns influencing the investment scenario, India's commercial real segment remains on a constant growth trajectory. According to industry reports, the Indian real estate sector received PE investment worth $2.6 billion in H1 2023 across the office, warehousing, and residential sectors in the first half of 2023.
Amongst all, the office space segment received the largest share of all PE investment with 68 percent and NCR's office space market stood at the second spot with 32 percent of investment share. Overall, PE investment in the Indian real estate sector is estimated to touch $5.6 billion in 2023, a 5.3 percent year-on-year (YoY) growth. The market sentiments project stronger growth prospects ahead for the commercial real estate market and grade-A office assets are likely to dominate the PE investment share in the coming years as well.
Commercial real estate in India is expected to witness steady growth momentum in the coming years. Factors like economic growth, urbanization, infrastructure development, technological advancements, business expansions, and favourable government policies have created a conducive environment for the commercial real estate segment. However, it is essential to monitor market dynamics, regulatory changes, and global economic factors that can influence the growth trajectory of commercial real estate. The sector's expansion will not only create employment opportunities but also contribute to the overall economic development of India.
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