As India emerges from the clutches of the pandemic and stabilises itself amid economic concerns around the Russian invasion of Ukraine, the commercial real estate sector has received a major boost fuelled by a host of factors. Commercial real estate (CRE) has recorded impressive growth in 2022, accelerating the momentum set in 2021 and looks poised to capitalise further on new emerging opportunities in 2023.A major driving force behind the resurgence and sustained momentum of CRE has been new-age accessible instruments like fractional ownership and REITs. These instruments have enabled regular investors a share of the booming CRE pie and expanded the overall investment base.
Below are some of the expected trends for 2023:
Performance
As demand continues to soar steadily, the CRE sector is expected to grow to a market value of $1 trillion, up from $200 billion in 2021, and is expected to contribute to 18–20 percent of the country’s GDP by 2030, as per reports. It is expected that 2023 will see the sector spreading its wings as sectors like retail, hospitality, warehousing, data centres were spurred, by soaring demand and investments.
Warehousing & Data Centres
A majority of the demand has been in Grade A warehousing spaces. The growth is illustrated in the fact that the average size of a Grade A warehouse in India has doubled from 80,000 square-feet in 2018 to 1,60,000 square-feet in 2022.
Overall stock in the first half of 2022 stood at 307 million sq ft, compared to 170 million sq ft in 2018 and is expected to reach ~500 million sq ft by 2025, at a CAGR of 28 percent year on year.
According to industry experts, the warehousing and logistics sector has been the largest beneficiary during the COVID-19 pandemic and the share of total real estate investment in the sector has increased from 2 percent in 2020 to 20 percent in 2021. Warehouse volume in India has grown nearly three-times from 2.4 million cubic-feet in 2016 to 6.4 cubic-feet in 2021.
Return of Office Spaces
There will be a heartening trend in 2023 which will lead to the return and consolidation of demand for office spaces. Premium office spaces have attracted investors; thanks to a sharp uptick in demand by IT companies, software and BFSI firms. Recording a 66 per cent rise, the office space leasing has witnessed an absorption of 42 million sq. ft. Moreover, the growth of co-working spaces, reverse migration back to cities, and MNCs making India their new APAC bases have contributed significantly to the numbers in 2022.
Fractional Ownership
Accessible options like fractional ownership of commercial real estate (CRE) have helped investors not only preserve, but grow their capital amount. Such investments offer 8–10 percent rental yield per annum and investors also get capital appreciation which ranges between 5–10 percent, so the investor earns 13–20 percent IRR for the time they are invested in.
The rental yield of a commercial property (8–10%) is higher than the yield from a residential property (2–4%). So, an investment of 25 lakh in fractional ownership has the potential to deliver Rs 16,500 to 20,000 monthly in rental income alone. This leads to a steady expansion of wealth and improved monthly liquidity.
These kinds of investments are Ideal for investors looking for a fixed monthly income: as these properties are able to deliver a 8–10% rental yield, which is best in class in the fixed income category. Along with that, these properties also get capital appreciation, so the investors don’t have to worry about capital erosion, while consuming the rent from the portfolio. Also, with the escalation clauses in the rental agreements, the rent they receive also Increases on regular intervals, more or less with Inflation. So, they get inflation protected returns along with being able to take care of their monthly expenses.
These kinds of investments are also ideal for Investors looking at alternative asset classes to diversify their portfolio without dilution of returns.Read More On..
