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Office Properties Drive US$ 6.06 billion Investments into Indian Realty in 2019

IBEF:  January 14, 2020

Indian real estate witnessed an increase in investment by global investors irrespective of slow sales momentum in residential segment as demand for office properties sustained and offered them superior returns.

In 2019, Indian real estate attracted over US$ 6.06 billion investments led by office segment receiving more than 40 per cent of the total funds utilised. During the year, Mumbai dominated the investments into office sector followed by the National Capital Region (NCR) and Hyderabad among the key markets, as per the CBRE South Asia report.

There was 25 per cent rise in gross leasing activity, according to the report, from a year ago to cross 60 million and reach a historic high of almost 61.6 million sq ft by the end of 2019. The office leasing was dominated by Bengaluru followed by Hyderabad, Delhi NCR and Mumbai, on an annual basis, together accounting for almost 75 per cent of the overall space take-up.

"In 2019, policy reforms across various sectors acted as a business sentiment booster, leading to tremendous improvement in India's Ease of Doing Business Ranking. According to the World Bank, India ranks 63rd among 190 countries on the Ease of Doing Business index; the ranking is anticipated to improve further in the coming years, backed by progressive government policies. This helped in retaining the buoyancy of the office sector in 2019, where demand was driven by global multinationals, domestic firms and a healthy supply infusion in cities such as Hyderabad and Bangalore," said Mr Anshuman Magazine, Chairman & CEO - India, South East Asia, Middle East & Africa, CBRE.

He expects that the office stock will increase to a billion sq ft by the end of 2030 and flexible space to turn mainstream, accounting for 8-10 per cent of the total office stock.

The share of the tech sector in overall space take-up in 2019 increased from about a third in 2018 to almost 40 per cent; with overall space take-up by such firms increasing by more than 45 per cent on an annual basis. This growth was driven by global multinationals, which accounted for more than 70 per cent of the overall space take-up by tech firms this year.

The share of research, consulting & analytics firms rose to 5 per cent in 2019 from 4 per cent in 2018 where as the collective share of sectors such as engineering & manufacturing, BFSI, e-commerce and research, consulting & analytics, decreased from almost 36 per cent in 2018 to 31 per cent in 2019.

In 2019, SEZs accounted for about one-third of the leasing activity as many corporate entities showed interest in SEZ spaces irrespective of the upcoming sunset clause deadline. Occupiers continued to choose flexible spaces, with the share of the segment increasing from 12 per cent in 2018 to about 14 per cent in 2019.

"Several occupiers are likely to adopt newer workplace strategies to realign their portfolios by trying to find the right mix of agility within their core workplaces along with adding external flexible options (especially managed paces).

Tech and workplace transformation will continue to be high on occupiers' priorities, thus putting employees at the epi-center of all real estate strategies," Mr Ram Chandnani, Managing Director, Advisory & Transaction Services, India, CBRE South Asia.

According to him, office assets would continue to be a part of future REIT portfolios in India, thus further boosting investor and developer interests going forward.

During the year, tenants continued to future-proof their portfolios and hedge against future rental escalations by pre-leasing space across various cities. In 2019, more than 20 million sq ft of pre-leasing activity was recorded mainly in Bangalore, Hyderabad, Pune and Mumbai.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.