Commercial Real Estate, the Future of Investing

Triggered by strong fundamentals, infrastructural developments and conducive policy reforms, the Indian commercial realty has been embarking on a higher growth trajectory, contributing significantly to the country’s economic story. It has attracted equity investments worth over $15.4 billion since 2011, as revealed by a Knight Frank report. Owing to its growth prospects, the sector has been on investors’ radars for quite a long time now.

Though the initial phase of the coronavirus outbreak resulted in weakening of growth sentiments, the revival of economic activity post lockdown soon set the pace for recovery. A report by JLL revealed the gross leasing volume grew to 14.7 million sq ft in the third quarter of 2020, witnessing a whopping 138 per cent increase quarter-on-quarter. The uncertainty brought by the second wave is temporary and is expected to have a limited impact on investor sentiments.

Let’s explore the points contributing to the exponential growth of commercial real estate:

1.     Development of extraordinary quality with fusion of technology

Commercial real estate is no more a labour intensive market. It now uses construction focused drones, hardware, 3D printing, smart wearables, pulsed radar object detection, immersive technology and radio frequency identification (RFID) to deliver a pleasant customer experience. These innovative tools and applications are changing how construction companies design and execute projects.

2.     Attractive option for MNCs

Due to affordability of land and labour, a series of infrastructural developments, and increase in the ease of doing business, India has emerged as an attractive option for MNCs to establish their base in South Asia. The real estate sector in India will likely reach $1 trillion by 2030 as predicted by IBEF’s Real Estate Industry Analysis 2020.

For example, over the past few years, Gurgaon and Noida have emerged as business hotspots, welcoming many MNCs, Indian companies as well as start-ups to set up their office(s) in business parks. Also, commercial real estate segment has performed much better than residential realty in terms of ROI over the last few years. The reasons are many — close proximity of NCR to the national capital and availability of modern options for commercial office spaces. 

3.     Push to start-ups

With an increasing number of small businesses due to favourable government policies and entrepreneurial spirit among the youth, the demand for office spaces is on the rise, which is ultimately contributing to the growth of commercial real estate.

4.     Emerging I-T hub

India is home to advanced technologies, skilled professionals, and affordable real estate, which contribute towards its emergence as the fastest growing IT industry in the world. This is also one of the reasons for the country being the favourite choice for commercial investment. Further, with the rise of e-commerce, there is an increase in demand for warehouses across the country. Therefore, the growth of commercial real estate happens naturally.

5.     Fractional investment: emerging trend in commercial real estate

Fractional investment, a new, feasible and safe way to pocket-friendly investment in commercial real estate, is a recent trend that has gained acceptance in the industry. It is an investment strategy wherein several investors jointly buy Grade-A office property by pooling in their money. The assets undergo rigorous regulatory and statutory clearance checks before being offered to a group of owners. It is expected to become a dominant investment trend in the market over the coming years. The concept has already seen significant traction in advanced markets like the US, Hong Kong and Singapore.

There are many merits of fractional ownership — investment safety given the Grade-A quality, earning a regular rental income, improved liquidity as these units can be sold at any point of time and capital gains if one stays invested for some time. Hence, fractional ownership, a whole new investment asset class for Indian households, is all set to significantly influence commercial real estate investments.

Summing up

Real estate has traditionally been popular as a safe investment option. Owing to growth prospects as well as assured and lucrative returns, commercial real estate will continue to remain the preferred choice of investors.

The writer is CFO, Grovy India

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.