July 22, 2022 – CBRE South Asia Pvt. Ltd., on Friday announced the findings of its report, ‘India Market Monitor – Q2 2022’. The report highlights the growth, trends, and dynamics across all segments of the real estate sector in India.
According to the report, capital inflows in H1 2022 jumped by 42% over H2 2021 and 4% compared to H1 2021. On a quarterly basis, the capital inflows in Q2 2022 stood at USD 2 billion, an increase of 47% over Q1 2022. Delhi-NCR, Chennai, and Mumbai dominated total investment quantum in Q2 2022, with a cumulative share of about 90%.
Institutional investors led investment activity with a share of nearly 65%, infusing liquidity primarily in brownfield assets, whereas developers (31%) continued to prioritize greenfield investments. About 70% of the capital inflows were deployed for pure investment or acquisition purposes during Q2 2022, while 30% were committed to development or greenfield projects.
The report also highlighted the office sector’s dominance of investment activity, with a share of about 57% – followed by land/development sites (30%) and the retail sector (10%). Foreign investors accounted for about 67% of the total investment volume in Q2 2022, with investments from Canada garnering a 59% share.
“In 2022, real estate investments are expected to grow further on the back of a strong rebound across asset classes. With total capital inflows reaching USD 3.4 billion in H1 2022, we expect these investments to rise by over 10% versus the 2021 benchmark. Greenfield assets are likely to witness a strong investment uptick. However, we might feel the impact of volatility in the global investments market,” said Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE.
“Leading developers have raised over INR 18,700 crore (USD 2.4 billion) through the QIP and IPO routes since FY2019 – something we expect to continue in 2022. With improved financials and stronger residential sales in 2022, we also foresee leading developers being in a much better position to negotiate with institutional investors for funds at a comparatively lower cost,” said Gaurav Kumar and Nikhil Bhatia, Managing Directors for Capital Markets and Residential Business, CBRE India.
RE Investment Outlook:
- Interest in PropTech firms and RE ancillary companies anticipated to increase amidst boom in the residential sector and revival in other sectors.
- Alternate Investment Funds (AIFs) will remain a major lending source to the commercial real estate sector as NBFCs also plan to set up AIFs to cater to funding requirements.
- Investments into REITs expected to increase owing to portfolio expansion and launch of new REITs across office, I&L and retail assets.
- An upward trajectory is anticipated in the financing cost amidst the monetary tightening measures undertaken by central banks worldwide to tame inflation; margins could see some pressure.
Office: Record leasing activity drives the sector, positive leasing momentum to gain further strength.
- Supply addition recorded at 26.1 mn sq. ft. in H1 2022, up by 26% Y-o-Y; leasing activity reached 29.5 mn sq. ft. during the period, a rise of 157% Y-o-Y
- Supply addition of 16.7 mn sq. ft. seen in Q2 2022, up by around 78% Q-o-Q and 64% Y-o-Y; leasing activity was recorded at 18.2 mn sq. ft., a rise of 220% Y-o-Y and 61% Q-o-Q
- Small- to medium-sized deals (up to 50,000 sq. ft.) dominated space take-up with a share of almost 84% in Q2 2022.
- Bangalore, Delhi-NCR and Hyderabad dominated space take-up, with a combined share of 67% in Q2 2022
- Hyderabad, Delhi-NCR and Bangalore together accounted for 76% of the supply addition in Q2 2022
- Rental increase of about 1-5% Q-o-Q was recorded across multiple micro-markets in Delhi-NCR, Chennai and Bangalore and PBD Hinjewadi in Pune. SBD Kharadi in Pune and PBD in Hyderabad recorded a rental rise of about 6-9% Q-o-Q
- Technology firms drove the overall leasing activity with a 31% share, followed by engineering & manufacturing companies (16%), flexible space operators (12%) and BFSI corporates.
- Leasing to pick up momentum going forward; space take-up would be attributable to the release of pent-up demand and expansion & consolidation requirements of occupiers.
- As the recovery momentum remains upbeat, differentiated and high-quality institutional supply in core markets would continue to draw flight-to-quality absorption.
- Flexible work patterns have increased in prevalence, but several occupiers are yet to formally define hybrid working and formulate relevant policies and guidelines. This is likely to take place over the next few quarters.
- Large institutional players to continue with greenfield investments via JVs / partnerships / platforms or brownfield investments via REITs, which would boost upcoming supply in the coming years.
- Greater emphasis on flexible seating arrangements observed as the office becomes a centre for collaboration; buildings that are ‘futureproofed’ via a combination of leading-edge physical, human and digital elements likely to witness higher demand.
Industrial & Logistics: Resilient sector poised for sustained growth.
- I&L leasing activity in Q2 2022 reached 6.1 million sq. ft.
- 3.6 million sq. ft. of supply addition witnessed in Q2 2022
- With a share of ~57%, medium- to large-sized deals (more than 50,000 sq. ft.) dominated leasing activity.
- Bangalore led absorption with a 25% share, followed by Chennai (21%), Mumbai (15%) and Delhi-NCR (15%)
- From a sectoral perspective, 3PL players (58%) and engineering & manufacturing (14%) firms were the key drivers of demand.
- Rental growth witnessed in Hyderabad, Bangalore, Pune and Mumbai.
- Space take-up likely to remain range bound at about 28-32 million sq. ft., led by the continued expansion of 3PL players.
- Focus on operational efficiencies could lead to growth in ‘flight-to-quality’ leasing; development completions by organised players to increase in line with the demand.
- Increased focus on upgradation / expansion opportunities in tier I cities; new market penetration in lower tier cities and extension of local distribution networks in emerging logistics hubs to drive leasing
- Warehousing facilities with features such as high ceilings to accommodate automated stacking systems, sufficient loading / unloading zones and power back-up provisions likely to gain more traction.
- Capital flows to continue from both global and local players, with both greenfield and brownfield acquisitions remaining attractive.
Retail: Sector back on growth trajectory
- Retail leasing activity touched ~1 million sq. ft. in Q2 2022, up by nearly 363% Y-o-Y and about 118% Q-o-Q.
- Leasing activity in H1 2022 was up by about 167% Y-o-Y
- Supply addition in H1 2022 touched 0.81 million sq. ft., up by about 523% Y-o-Y
- Fashion & apparel players drove the leasing activity with a 28% share, followed by homeware and department stores and entertainment centres (14% each)
- Delhi-NCR led absorption with a 25% share, followed by Hyderabad (20%), Bangalore (17%) and Chennai (13%)
- Despite an uptick in online shopping, brick-and-mortar retail is here to stay – a mix of both is becoming prevalent across brands.
- Retailers are likely to continue to focus on the three Rs – resizing, rightsizing and relocating – in order to ensure long-term growth and broaden their customer base.
- Retailers are expected to continue to reinvent their marketing strategies such as adding a touch of ‘experience’ to their physical stores and think of innovative ways to engage with customers.
- Technology would become a key enabler; virtual fitting rooms, fit scanners, smart mirrors, iBeacon, visualization tools, etc. are likely to provide a seamless experience to the consumers.
Residential: After scaling another sales peak in Q2 2022, sector poised for a strong 2022
- Housing sales jumped 121% Y-o-Y to about 76,000 units in Q2 2022, recording 9% Q-o-Q growth.
- Number of units sold touched 146,000 in H1 2022; up by 72% Y-o-Y and 30% on a half-yearly basis
- ~76,500 units launched Q2 2022; up by 117% Y-o-Y and 26% Q-o-Q
- ~137,000 units launched in H1 2022, up by 66% Y-o-Y and 16% on a half-yearly basis
- Pune, Mumbai, and Delhi-NCR dominated sales in Q2 2022, with a cumulative share of more than 63%.
- The mid-end and affordable / budget segments cumulatively drove 76% of the sales in Q2 2022
- Residential real estate poised for a strong year in 2022, with both supply and new launches expected to post a robust performance; uptick in new launches expected especially in Pune, Mumbai, Hyderabad, Bangalore, and Delhi-NCR.
- Asset prices are likely to witness an uptick on account of strong momentum in sales as well as developers’ decision to pass on the rising input and labor costs to buyers.
- High-end, and premium segments are anticipated to gain traction, fueled by the anticipated appreciation in capital values and increased activity by HNIs and NRIs.
- Robust sales led to a fall in unsold inventory across most cities on a Y-o-Y basis despite steady new launches, inflationary trends and monetary tightening measures. We expect this trend to sustain in the near term.
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