Real estate sector expected to surpass

Real estate sector expected to surpass USD 5 billion funds flow in 2022; set to recover lost ground across segments: JLL

• The investments will be at par with the fund flow witnessed annually in the 2017 -2020 period
• Residential segment is expected to register 20%-25% annual growth in sales as compared to the previous yearUSD
• Input cost pressures are likely to impact developer margins as price rise is expected to be limited to key projects and markets
• Office real estate markets are expected to record 30-35% annual growth in 2022
• The data centre industry is poised to add a record high 277 MW capacity in 2022

 Institutional investments managed to cross the USD 5 billion mark in 2020, due to large portfolio deals worth USD 3.2 billion during the last quarter of the year. However, 2021 witnessed more board-based recovery with 31 deals during the first nine months as against 19 deals during the same period of 2020. Unless some large portfolio deals are not inked at the end of the year, annual investments are expected to be in the USD 3.8 – 4 billion range in 2021. The year 2022 is expected to cross USD 5 billion mark, which was witnessed by the Indian real estate annually during the 2017-2020 period, according to JLL’s Outlook 2022.

Investors, apart from the office sector, also allocated fresh capital in the residential segment which staged a smart recovery, while warehousing and data centers continued to attract investments. The retail sector witnessed capital commitments through investment platforms that remain bullish on its growth prospects.

Radha Dhir, CEO & Country Head, India, JLL, said, “The performance of institutional investments in the Indian real estate during 2021 can be summed up in one theme – ‘increasing immunity to uncertainty.’ Investments almost doubled Year-on-Year during the first nine months of 2021 at USD 2.9 billion. India’s third REIT was listed in February 2021 which was oversubscribed by 7.9 times indicating investor appetite. REIT players continued to raise low-cost debt and use the proceeds to acquire assets at attractive valuations during the year. As the second wave receded, the office market also showed signs of recovery. The net absorption for Q3 2021 at 5.9 million sq ft, was the highest in the year to date. Given the transaction activity recorded so far in Q4, the last quarter is expected to be the strongest.”

“The Indian economy is expected to gain further strength and broad-based investment growth on the back of low-interest environment, continued monetary stimulus, improving revenue visibility across asset classes, and inclusive growth policy. Listing of REITs, distressed opportunities, asset diversification, high growth data center, and logistics segments will drive the investment momentum in 2022,” she added

“Real estate sector remains a critical cog in the wheel in India’s economic growth story. The sector is well on its way to recovery and reaching pre-pandemic levels. While market recovery remains on track, it will not be a straight line across the asset classes, as each finds it is next to normal. The office sector is likely to clock a 30-35% Y-o-Y growth in net absorption levels in 2022 but will remain much below the highs of 2019. The residential segment is expected to reach pre-COVID quarterly sales volumes in 2022 and given the strong momentum may also match the pre-demonetization quarterly sales in the latter half of 2022. The key factor in the pace and rate of recovery will be the prevailing conditions as there is a looming threat of new variants which may disrupt the growth trajectory,” said Dr. Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.

The residential segment’s average quarterly sales expected to reach pre-Covid levels 

The residential sector has witnessed green shoots of recovery and is expected to gain further momentum in 2022. Renewed buyer confidence, reduction in home loan rates, incentives & discounts by the developers have been instrumental in supporting the residential market recovery. The Jan- Sept 2021 period recorded a healthy quantum of sales and launches, which are inching towards those of the pre-COVID era. Sales of more than 77,000 residential units were recorded in the first three quarters of 2021, an increase of 47% compared to the same period last year. New launches of around 93,000 units were recorded, indicating an increase of 38% compared to the same period last year.                

The analysis suggests that 2022 will register 20%-25% annual growth in sales as compared to the previous year due to affordable synergy and other positive market conditions. With strong end-user demand and conducive market conditions, average sales volume is expected to reach the average quarterly sale of 35,926 units recorded in the pre-covid year of 2019. If prevailing economic conditions remain positive, the average quarterly sales by end of 2022 may even match the first three-quarters of the 2016-pre-demonetization era (39,891 units).

The buyer preference towards plotted developments and independent floors is expected to be reflected in more launches in this category. The increased demand momentum, limited inventory in select segments, and rising input costs are expected to result in a 5-7% price increase in select residential micro-markets. At a macro-level, prices are otherwise expected to remain largely stable, with the main objective of developers focused on supporting the current momentum in sales activity and driving it further.

India’s office market is poised for a strong 30-35% annual growth 

India’s office real estate markets are expected to record 30-35% annual growth in 2022 on the back of growing traction for the tech industry in a time of increasing tech spend and digital transformation from global corporates. India’s increasing role in the innovation and R&D sphere will also drive more Global Capability Centres to set up operations even as existing ones expand on the back of India’s talent base and overall real estate costs. Demand from other sectors such as BFSI and Consulting is also likely to show some improvement even as other sectors such as e-commerce, manufacturing, and healthcare gain more strength. Additionally, demand for managed spaces will provide a push for the continued growth of the flex space segment which is expected to account for about 15-20% of all leasing activity in 2021 and continue its strong showing in 2022 as well. Enterprise leasing in the flex segment is expected to be near 60,000 seats by end-2021, which is more than double the number on a Y-o-Y comparison. 2022 is expected to clock similar performance as flexibility and cost optimization remain key factors driving portfolio strategy for occupiers. Rents are likely to remain stable with an upward bias, particularly in prime office markets driven by mark-to-market renewals and new deals in premium quality projects.

While the future of work is still being formalised with the advent of hybrid work employers are keen to bring back the workforce to the office. Despite the flux, occupiers had greater clarity in 2021 on their real estate portfolios and strategies.

Expect record-high 277 MW capacity addition to Indian Data Centre Industry   

The convergence of data protection, industry-friendly regulations, the Government’s digital initiatives, and investments are going to give a structural push to the industry. This coupled with the rollout of 5G, ever-rising digital usage, increasing footprint of global DC operators and cloud players would usher in another high growth year for the Indian DC industry in 2022. The Indian Data Centre industry is poised to add a record high 277 MW capacity in 2022, requiring 3.2 Mn sq ft of real estate space. The immense growth will also lead to parallel trends of efficient energy usage, green energy investments, DC-ready skilled manpower, and the growth of data-driven emerging segments.

Indian Data Centre (DC) industry which stood at 499 MW* as of H1 2021 is expected to record another strong year of demand growth with commensurate supply. The global sustainability movement has led to cloud players setting ambitious renewable energy targets. This has been reflected in their choice of DC facilities that follow sustainability practices. Most DC operators tied up with renewable energy players during the year. Some players are reducing carbon footprint, right from design, building material, construction, and at the operational stage. Data centres being technology-intensive has led to rising demand for skilled manpower. India has a vast pool of technically trained resources that can be reskilled for the requirements of the DC industry. Bengaluru, India’s leading tech city, is being evaluated and chosen by Global DC players to set up the Global center of excellence and employ IT professionals.

 

RBI Repo Rate Announcement

 RBI Repo Rate Announcement | Commentary by CBR

“RBI’s maintenance of an accommodative stance will help sustain homebuyer sentiments which were strengthening pre-second wave. Despite the present disruption, Real Estate has been one of the most resilient industries even amidst the pandemic and has been showing signs of recovery over the last few quarters. With the repo rate and reverse repo rate being maintained at a status quo of 4% and 3.35% respectively, banks and NBFCs will continue to render loans at reduced rates to homebuyers, thus supporting demand in the realty sector.

We also welcome RBI’s directed focus on infusing liquidity in the industry, specifically in sectors such as hospitality and tourism, which will further benefit the overall realty sector.”

Majority of hotel operators expect up to

Majority of hotel operators expect up to two-year revenue recovery period: JLL

• 60% of the operators surveyed believe that it will take between 13 to 24 months for their portfolio to return back to 2019 RevPAR levels
• 20% believe that their hotels could bounce back to 2019 RevPAR levels within 6 to 12 months from now
• 53% of the total leading hotel operators have shut down more than 80% of their inventory during the nation-wide lockdown period
• 53% of the respondents believe that key business cities are likely to witness an early pick-up in room nights demand

JLL, the largest real estate consultancy firm in the country has recently conducted a survey with 15 leading hotel operators in India having adequate presence across hotel segments in both business and leisure markets. The survey was conducted to understand the effects of the pandemic on development and opening of new hotels, as well as the support required for the sustenance of the sector.

The COVID-19 pandemic has brought the world to a standstill, with hospitality, travel and tourism sector being the most affected due to travel restrictions across the world and within India. In order to gauge the impact of the pandemic, following the survey, JLL Hotel and Hospitality Group has launched a whitepaper titled ‘Impact of COVID-19 on Indian Hospitality Industry.’

According to the survey, only 20% of the operators believe that their hotels could bounce back to 2019 Revenue Per Available Room or RevPAR levels within 6 to 12 months. Whilst 60% believe that their portfolio should be back on 2019 levels between 13 and 24 months from now. Luxury hotel operators are expected to ramp-up much slower with some expecting that their portfolio may take more than 2 years to reach 2019 performance levels. Qualitatively, the survey also indicated that business travel is expected to reduce in the post COVID-19 world as companies will rationalize spending on travel, which could, in a way, benefit branded economy and midscale hotels.

“The standard operating procedures will be significantly transformed to promote enhanced hygiene standards and to adopt technology to support social distancing policies. However, with the slowdown of hotel developments, capital assistance is needed to help hotels sustain until demand returns,” says Jaideep Dang, Managing Director, Hotels & Hospitality Group (India), JLL.

Currently, 47% of the operators expect to re-open their hotels for operation within 2 weeks of lifting of lockdown / travel restrictions by the respective state governments and 33% of operators expect to open within a week. Importantly, almost all operators believe that most hotels in their portfolio would need working capital infusion to continue or re-start their operations because the reserves have almost dried.

As the sector continues to build contingency plans to alleviate the fallout of the crisis, hotel operators are extending the hand of solidarity to their owners by providing certain relief measures. 67% of the operators surveyed confirmed that they are being approached by the hotel owners for financial assistance or relief, for example, deferring management fees, fixed system charges etc. providing much needed relief to hotel owners.

From repurposing a property to adapting new strategies and approaches to secure a strong come-back for hotel assets once the industry restarts, a multitude of things have to be considered from operational changes to strict hygiene measures. Hotel developments have slowed down, and most hotel openings are likely to be deferred by at least 6 months. Though unlock 1.0 has allowed hotels to open in a few cities, ride ahead seems bumpy with limited demand offtake for rooms, F&B and other recreational business. Hotels could rather earn better revenues serving as COVID support facilities in more affected cities such as Delhi and Mumbai.

JLL | The Next Normal - Real estate in a post-COVID world

JLL | The Next Normal - Real estate in a post-COVID World

Key Highlights:

• The office sector is expected to lead the recovery cycle
• The green shoots of recovery in residential real estate will be in tandem with overall economic growth 
• Top developers surveyed are reviewing Common Area Maintenance (CAM) charges discount or waivers
• In the larger markets of Delhi NCR and Mumbai, developers are open to discuss extra rent free period in cases of new deals. Similar trend seen in Chennai and Kolkata
• Majority of the construction activity has largely resumed across the cities except Chennai where it has been slow 

Indian real estate prepares for re-entry to the Next Normal economy

·        The office sector is expected to lead the recovery cycle

·        The green shoots of recovery in residential real estate will be in tandem with overall economic growth

·        Top developers surveyed are reviewing Common Area Maintenance (CAM) charges discount or waivers

·        In the larger markets of Delhi NCR and Mumbai, developers are open to discuss extra rent free period in cases of new deals. Similar trend seen in Chennai and Kolkata

• Majority of the construction activity has largely resumed across the cities except Chennai where it has been slow

  

India’s real estate will experience a paradigm shift as the country re-enters the COVID-19 world and the national economy feels the impact of the pandemic. According to JLL, real estate occupiers and investors will receive some respite via the USD270 bn Government of India COVID-19 relief package, but will need to reconsider pre-crisis priorities and accelerate new strategic initiatives to adapt to a “Next Normal” in Indian economy.

All segments of real estate will be impacted in some form or the other due to COVID-19, but the economic contraction will lead to some pre-crisis trends and themes that will have to be fast-tracked. JLL’s report “The Next Normal - Real Estate in Post COVID World,” released today, stresses that broader adoption of industry mega trends will reshape and reinvigorate the sector for long-term growth.

“As we adapt to and embrace the Next Normal world, there will be a greater emphasis on well-being, sustainability and business continuity planning across businesses within real estate. Real estate as an asset class is here to stay; however, it is inevitable to reinvent, to stay relevant in this new paradigm. It is indisputable that the pandemic induced disruption is changing the rules of the game, but also accelerating the increased adoption of technology and artificial intelligence (AI) in processes ranging from marketing and sales to loan modelling and data management,” says Ramesh Nair, CEO and Country Head (India), JLL.

Impact on Office Market:

The office market saw the net absorption fall by 30% i.e. to 8.6 million sq. ft. in Q1 2020, mirroring the moderation of quarterly economic growth to 3.1%.  Expansion plans of many companies paused resulting from deferred deals, while real estate strategies shifted to re-negotiations of contracts and delaying fit outs. “In the short-term, re-negotiation of contracts between landlords and occupiers is the underlying trend in the office real estate market,” says the report.

However, according to top developers surveyed in the office sector, many are looking at Common Area Maintenance (CAM) charges discount or waivers. This has emerged as a significant trend where landlords / developers are either agreeing or reviewing the same with occupiers. Having said that, it is important to note here that there are no visible trends in favour of rental deferment / rental discount until now across the top seven cities.

Despite government guidelines, companies are more cautious, functioning with 10%-30% of employees as has been observed so far.  There is an increased focus on sanitization, employee health and well-being. “It is essential for developers / landlords to focus on impeccably maintaining and sanitizing their properties,” notes the report.

“While lockdowns were a necessary intervention to limit the spread of the virus and save human lives, the cost to the Indian economy cannot be underestimated. While the office sector is expected to lead the recovery cycle, the green shoots of recovery in residential real estate will be in tandem with overall economic growth and improvement in the current fragile employment scenario. Institutional investors are expected to assess the progress in each sector and are likely to focus on asset management and support projects for their last mile funding in the short term,” says Samantak Das Chief Economist and Head - Research and REIS, JLL 

In the medium to long-term, occupiers and developers will re-evaluate their strategies. Office demand will remain robust in the medium to long-term. “The office market fundamentals are strong – with low vacancy, stable rental growth and limited upcoming supply. It is expected to recover the fastest once the outbreak is under control,” the report adds.

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Impact on Residential Market:

Due to the pandemic, homebuyers have deferred purchase decisions, resulting in a 30% sales decline in Q1 2020. In the short-term, developers will focus on restarting their construction activities and offloading unsold inventory.

According to top developers surveyed in residential sector, there are Indications of price rationalization in Delhi NCR, Bengaluru, Chennai and Kolkata. Construction activities are expected to gradually resume nationwide and in major cities, projects are resuming.

“Residential market’s revival hinges on intensity and duration of the pandemic. As consumer sentiments improve post the lockdown period, sales in the affordable and mid segments are expected to show initial green shoots of recovery towards the end of 2020, with the onset of the festive season,” the report points out.

Impact on Capital Markets:

While annual investments crossed USD 5 bn for the last three years, 2020 started on

a weaker note, the time period between January to March 2020 saw a 58% decline in investments y-o-y, with transactions paused. A nationwide lockdown meant no face to face meetings, site visits, legal due diligence and financial closure, therefore leading to transactions coming to a standstill.

“Income stability, indispensable business operations and occupational density are expected to be the key determinants for investment evaluation. Data centers, logistics (including warehousing), critical office outsourcing facilities and global in-house centers are expected to attract capital,” adds the report.

In the short term, the institutional investors are expected to be risk averse and cautious over the next few quarters leading to extended investment cycles.