The recently released CBRE-CII joint report titled ‘Indian Real Estate: Taking Giant Strides - 2023 Mid-Year Outlook’ highlights the growing focus of developers and occupiers on sustainability, green-certified office stock in India, which has increased by over 36% since 2019 to about 342 mn. sq. ft. across top six cities in India. Bangalore, Delhi-NCR, and Mumbai are among the top 3 cities spearheading green-compliant office spaces with a cumulative share of ~68% of the total, green-certified office stock in India as of June’23. Certified green office stock also increased substantially, growing at a CAGR of ~7.1% in the last ~5 years.

Enhanced focus on global and domestic Environmental, Social and Governance (ESG) regulations are driving occupiers’ flight-to-quality wave towards modern, premium, and sustainable spaces in the medium to long term. Sustainable building features and operations are increasingly becoming the most sought-after building attributes.

released CBRE-CII joint report titled ‘Indian Real Estate

As per the report, Bangalore tops all Indian cities with the highest green-compliant office stock, accounting for ~30% of the total pan-India stock, followed by Delhi-NCR with ~21% and Mumbai with ~17% of the total certified office stock in India as of June’23. Green office stock in Hyderabad accounts for ~15%, Chennai 9%, and Pune 8% of the total pan-India stock.

Global and domestic occupiers are prioritizing sustainability and have committed to targets with far-reaching impact. Global and national mandates, including the Corporate Sustainability Reporting Directive (CSRD), Enhancement and Standardization of Climate-related Disclosures, and India’s Business Responsibility and Sustainability Reports (BRSR), push occupiers to continue leasing in next-generation, green-certified office spaces.

released CBRE-CII joint report titled ‘Indian Real Estate

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, said, “The Indian real estate sector has demonstrated remarkable resilience in Jan-Jun’23, despite a global economic slowdown, primarily fuelled by robust domestic demand. In line with most major economies globally, the rate hike cycle in India seems to have come to a halt, with the RBI maintaining the status quo in the past two reviews. As the economy gains momentum and the real estate sector thrives, there is a growing emphasis on ESG and its compliance. We anticipate accelerated demand in modern, tech-enabled, and green-compliant spaces in the upcoming quarter. Additionally, we also expect alternative segments such as GCC’s, data centres and flexible workspaces to play a pivotal role in bolstering real estate growth”.

Leasing

As per the report, leasing activity across real estate assets withstood global headwinds in Jan-Jun’23 and is expected to grow further in the Jul-Dec’23 period.
  • Office leasing activity was noted at about 26.4 mn. sq. ft. during Jan-June ’23, with Bangalore, Chennai, and Delhi-NCR accounting for 60% of the overall leasing.
  • Space take-up in the Industrial & Logistics (I&L) sector grew by about 35% Y-o-Y, touching 19.1 mn. sq. ft in Jan-Jun’23. With sustained leasing activity expected in Jul-Dec’23, I&L space take-up is likely to touch 36-38 mn. sq. ft. in 2023, marginally surpassing the 2022 levels.
  • Retail leasing grew by 24% Y-o-Y in Jan-Jun’23 to 2.9 mn. sq. ft. Retailers and prominent developers alike are expected to continue exploring emerging untapped markets including tier-II, III and IV cities.
  • Residential sales in Jan-Jun’23 exceeded 150,000 units, surpassing sales reported in Jan-June’22 and Jul-Dec‘22 by around 4% and 6%, respectively. Sustained momentum in demand led developers to launch over 150,000 new housing units in Jan-Jun’23, marking an annual growth of 11%. Despite a lagged impact of monetary tightening, 2023 could well be the year with sales crossing the 300,000 units mark by the year-end.
  • While transaction closures were muted in Jan-Jun’23, we expect the investment activity to pick up pace in Jul-Dec ‘23, considering the strong deal pipeline. However, despite this anticipated pick up in momentum, overall capital inflows could still dip in 2023 owing to delays in decision-making and a general sentiment of caution around capital deployment. We expect overall investments in 2023 to be in the range of USD 6 – 6.5 billion.
  • The REITs market in India is anticipated to get more diversified with the listing of India’s first retail REIT earlier in 2023. Besides, the market is expected to witness the listing of India’s fourth office sector REIT in the upcoming quarters.
  • By the end of 2023, the total data centre stock in India is expected to increase by about 35% annually, touching ~1,048 MW, with a planned supply of about 170 MW in the second half of the year.

Office

  • An annual supply of 51 - 53 mn. sq. ft. is expected for the entire 2023, with Bangalore, Hyderabad, and Delhi-NCR expected to continue dominating completions.
  • RTO planning remains on top of the occupiers’ agendas; office occupancies and utilization rates are expected to improve further as preference grows for working more days from office.

Industrial & Logistics

  • Due to sustained leasing activity expected in the second half of the year, I&L space take-up is likely to touch 36-38 million sq. ft. in 2023, marginally higher than the 2022 levels.
  • Supply addition is expected to reach about 28 - 30 million sq. ft. by the end of 2023; projects by larger developers backed by institutional funds are expected to constitute 40% of the completions.
  • Select micro-markets in Mumbai, Chennai, Bangalore, Pune, Hyderabad and Ahmedabad could witness about 2 – 6% Y-o-Y growth in rents by the year-end, especially in investment-grade, tech-enhanced and strategically located assets.
  • I&L absorption would continue to be led by the third-party logistics (3PL) and engineering & manufacturing (E&M) sectors due to the continued adoption of ‘multipolar’ supply chain strategies by occupiers and the government’s pro-investment efforts.

Retail

  • With malls becoming entertainment centres, footfalls in brick-and-mortar stores will continue to be on the rise, especially with the approaching festive season.
  • Retailers will continue upgrading their stores in terms of technology, consumer engagement, redistribution of space and personalised services to ramp up their experience quotient.
  • Supply addition is expected to strengthen across tier-II, III and IV cities.

Residential

  • Both sales and new launches could reach a ten-year high in 2023, touching or even exceeding the 300,000-unit mark.
  • The second half of the year is poised to attract a substantial number of first-time buyers, with fence-sitting end-users expected to make decisions during the festive season offers and discounts.
  • As the mid-end category by true definition has gone beyond the INR 1 crore mark, strong demand is anticipated in the ‘sweet spot’ of INR 1 - 1.5 crore price category. The premium and luxury segments are also expected to emerge as a sought-after investment avenue, particularly among HNIs and NRIs.
  • Affordability is no longer the sole decisive factor for homebuyers as health & safety, sustainability and integration of smart home technologies have also started to emerge as being core to home-purchase decisions.

Investments

  • Investment activity to pick up pace in Jul-Dec ‘23, anticipates overall investments in 2023 to be in the range of USD 6 – 6.5 billion.
  • Investment flows in real estate would remain steady over the next two years, with about USD 16 - 17 billion of cumulative inflows expected during this period.
  • While Metros and Tier-I cities would continue to be the major recipients of the equity inflows, Tier-II cities could also see rising level of investments on the back of increased real estate development activity backed by a healthy demand, particularly in the retail and I&L sectors.
  • Investments in alternate sectors, specifically in data centres, could gain further momentum.
  • India’s fourth office-sector REIT could be listed in the upcoming quarters along with 1 - 2 InvITs in the warehousing space.

Alternate Sectors

Flexible spaces

  • Increasing the use of flexible spaces will continue to be a portfolio strategy for occupiers.
  • The flexible space stock is likely to see further growth from the current stock of 59 mn. sq. ft. as of June ’23.
  • CBRE’s 2023 India Office Occupier Survey suggests that a major share of respondents are planning to allocate more than 10% of their office portfolios to flexible spaces. This proportion of such occupier respondents is expected to rise from 43% in Q1 2023 to 56% by 2025.

Data Centre (DC)

  • With continued demand from BFSI firms, cloud service providers, social media and content streaming companies, DC occupancy levels stood at 75 - 80% in H1 2023. These are expected to improve further towards the end of the year.
  • By the end of 2023, the total DC stock in India is expected to increase by about 35% annually to touch ~1,048 MW, with a planned supply of about 170 MW lined up for the second half of the year.

Hospitality

  • Demand for leisure travel continues to remain strong as ‘bleisure travel’ and workcations as concepts will continue to remain relevant.
  • Post COVID, there has been significant interest from international hotel chains looking to tap into the growing demand for hospitality services. Indian companies are also participating actively in this segment by way of investing or expanding their presence.
  • As regulations become stringent and country-level sustainability development goals come into focus, we expect hospitality players to accelerate their ESG journeys.
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