In the face of global headwinds, India's commercial real estate sector remains robust and flourishing. As per the Mordor Intelligence report, India's commercial real estate sector is set for rapid growth, with a projected CAGR of 13% from 2022 to 2027. Owing to the constantly growing interest of investors and occupiers, the commercial real estate segment consisting of Grade-A office spaces, retail spaces, and integrated commercial buildings is witnessing healthy growth.
Over the years, the real estate sector has emerged as an attractive investment option and continues to remain so. The commercial realty segment over others offers some lucrative benefits for investment purposes. The positive sentiments prevailing and the projected growth rate make it an opportune time to invest in India's commercial realty segment.
Tangible assets - Commercial real estate is a tangible asset with enduring intrinsic value, reflected in property prices. Unlike stocks, it remains consistently valuable. Property values may fluctuate, but real estate's worth is persistent. Even in challenging situations, like unpaid rent or foreclosure, it never becomes worthless. Land ensures profitability potential, and it can be restructured for added value.
Steady flow of Income - One of the standout advantages of commercial realty investment is the steady flow of income it generates through rental earnings. This consistent income stream makes it an ideal choice for passive income generation. Commercial leases are longer-term than residential ones, offering a stable flow of income to investors. However, investors need to conduct a thorough examination of their financial health, investment goals, risk tolerance, and profit timeline to maximize the benefits of this steady income stream.
Healthy Appreciation - Commercial real estate investments have the potential for healthy appreciation over time. This appreciation in property value can significantly boost an investor's overall returns. Properties in prime locations, with high demand from businesses and consumers, tend to appreciate steadily. This potential for capital appreciation not only enhances an investor's wealth but also provides a strong incentive for choosing commercial realty as an investment asset class.
Favorable market sentiments and robust growth - Commercial real estate in India has been witnessing a considerable surge in demand, and leasing activity. Besides, the sector is also having new supply owing to the increased demand. Strong economic growth plays a pivotal role in driving demand for commercial space. This positive trend has been a catalyst for economic prosperity, attracting businesses and investors alike.
According to a recent CBRE report, leasing activity in nine cities including Delhi-NCR, saw a 33% YoY increase, reaching 15.8 million sq ft in July to September 2023.
The expanding businesses, aggressive hiring, and new establishments are driving the demand for Grade A quality office spaces. India's stable economic policies and pro-business environment have caught the eye of foreign investors, drawn to the secure nature of commercial real estate. Simplified FDI rules and the potential for attractive returns make India an attractive destination for significant foreign investments in the sector.
Delhi- NCR witnessing impressive growth in the commercial realty activity
The Indian office market saw robust growth in new office space across the top 7 cities, reaching 48.65 million square feet in FY23. Though this marked a slight 5% dip compared to FY22, the market remained dynamic, due to the evolving and expanding businesses that fueled a high demand for fresh office spaces. Notably, Kolkata, NCR, Hyderabad, and Chennai showcased substantial year-on-year growth in new office supply. Moreover, average rentals across these cities observed a 4% increase in FY23 as compared to the previous year, driven by increased demand and rising construction costs. Kolkata took the lead with a remarkable surge of 218%, with NCR following closely behind at 52%.
This is due to the NCR’s (Noida and Gurgaon) thriving corporate epicentre, limitless opportunities, infrastructural development, strategic location, and seamless connectivity that positions it as a magnet for investors and corporations. With multinational corporations setting up and expanding their businesses in the city, the need for premium office spaces has surged, driving substantial growth in commercial real estate investments. Moreover, changing workforce preferences and a thriving entrepreneurial environment have fueled a surge in the need for flexible and modern workspaces, catering to both established organizations and startups.
While the positive global and domestic signals for the 2023 office market are promising, the strong demand trends have been observed in the second quarter of the year, reinforcing the anticipated momentum in the coming quarters. Collier's report anticipated that all six major office markets experienced increased demand in Q2 2023 as compared to Q1 2023. Chennai and Pune, in particular, saw their leasing activity to get double during this period. With improved global macroeconomic indicators and robust domestic leasing activities, Colliers predicts a robust conclusion to the Indian office market in H2 2023. Barring unforeseen events, the first half of 2024 is also expected to gain momentum, benefitting from the ongoing shifts in the Indian office market.
According to a recent report by Colliers India, Delhi-NCR had 2.2 million sq ft gross absorption in Q1, followed by faster growth in Q2 with 3.1 million sq ft leased, where Delhi ranked third amongst the other cities and emerged as one of the leaders in the leasing activity. This underscores Gurugram to be a preferred choice for commercial real estate investment and promises continued growth in the sector for years to come.
.png)
