A Quick Look At the Indian Real Estate Sector, 2018 - II

Retail Real Estate: Quality Malls Push Growth

While commercial and residential real estate sectors had their share of ups and downs this year, the retail and the hospitality sector was also far behind. A lot of regulations and policies saw these sectors performing well.

To begin with, 2018 saw the liberalisation of FDI policies, repositioning Indian retail on the global investment map and attracting a large number of global retailers into the country. In H1 2018, private equity investments into Indian retail swelled to over $300 million, denoting a bracing growth of 54 per cent over the previous year.

On the other hand, online retail also witnessed exponential growth in 2018. In fact, online retailing is now expected to be at par with physical retail over the next five years. With India positioned to become the world’s fastest-growing e-commerce market, online retail in the country is driven by robust investments and deepening internet penetration in the country.

As per ANAROCK data:

# Top cities with significant retail growth in 2018 included MMR, NCR, Bengaluru and Hyderabad

# New retail supply in 2018 was limited to 5.1 mn. sq. ft.

# Interestingly, apart from the top metros Tier II and Tier III cities played a significant role in India’s retail growth story in 2018

Saturation of the metros due to limited space availability, mounting rental values and escalating infrastructure issues fuelled retail growth in smaller cities like Ahmedabad, Bhubaneshwar, Jaipur, Lucknow, Thiruvananthapuram and Kochi. New malls that became operational in the smaller cities in 2018 range from anything between 200,000 to 18,00,000 sq. ft. in size, amply vouchsafing the increasing appetite for organized retail in the hitherto underserved cities.

In response to the huge potential in these markets, both domestic and international brands made deep forays into them via the online route, followed by more gradual offline presence. This disparity is hard to ignore and sends out a clear signal to investors and mall developers – physical retail deployment must pick up considerable pace in these smaller markets in the coming years.

Hospitality Real Estate:  28% GST on Luxury Hotels a Dampener

India’s ever-growing middle-class, rapid infrastructure development, rise in foreign tourists and the provision of the e-Tourist visa facility to nearly 164 countries gave a major boost to the hospitality industry in 2018. Technology played a vital role, with 2018 seeing a significant rise in the number of online bookings via mobile devices and apps. Social media platforms also drove significant footfalls.

Branded budget hotels emerged as the flavour of the year for Indian hospitality. Demand for hotel rooms continued to be driven by the meetings, incentives, conferencing and exhibitions (MICE) segment, further underscoring the benefits of India’s improved ease of doing business rankings.

Nevertheless, 2018 saw at least one major setback for the hotels industry—the 28 per cent GST on luxury hotels gave India the dubious distinction of being one of the world’s most taxed hospitality markets.

Innovation was the key word for the hospitality sector in 2018, with most players re-inventing their strategies and designing customized products to attract tourists. The retention and acquisition of key assets made for a lot of headline reportage, but the stronger, though subtler ‘vibe’ emanating from the hospitality industry was the struggle against becoming obsolete and irrelevant.

Other Sunshine Sectors

The logistics and warehousing sector transformed rapidly in 2018 after the Government granted the coveted infrastructure status to logistics in November 2017. In fact, warehouse stock supply is expected to see substantial increase over the next two years owing to implementation of GST, the Government’s determined infrastructure push and increased interest from national and international investors. Overall, strong economic fundamentals, proactive reforms and increasing use of technology will continue to boost the sector.

Besides conventional sectors, 2018 also saw the emergence of alternate asset beyond senior living. Student housing and co-living, barely mentioned or considered in previous years, drew considerable interest not only from industry watchdogs but also institutional funds.

All in all, 2018 was a mixed bag of hits and misses.

Source: ANAROCK Research

 Fast Forward: Trends That Will Shape 2019

Some of the trends that are expected to dominate India’s overall real estate sector in the coming year, may include the following:

# Liquidity crunch to continue until H1 2019

# Muted new housing project launches

# More interest for affordable housing by leading developers

# Consolidation to gain momentum

# The rental and managed living model (such as Co-Living) will gain traction

# Ready-to-move-in housing to remain centre-stage

# Housing prices will remain flat

# Alternate asset classes like Co-Working, Student Housing, Senior Living, Warehousing and Retail in Tier II &III cities to gain traction

# Private equity players will continue to make select investment forays