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Review 2019 and Outlook 2020 by Anshuman Magazine, CBRE




Despite a weakening economic scenario, policy reforms across various sectors in 2019 acted as a business sentiment booster leading to a tremendous improvement in India’s Ease of Doing Business Ranking.

According to the World Bank, India ranks at 63rd among 190 countries, and the ranking is anticipated to improve further in the coming years backed by progressive government policies. Meanwhile, the real estate sector has shown remarkable resilience despite the bearish phase of the economy. Below is a lowdown of how the real estate story unfolded in 2019:


Leasing activity for the office segment increased by more than 30% annually to cross 47 million sq. ft. during the first three quarters of 2019; to surpass its previous peak of 2018. The leasing activity stood at about 15.4 million sq. ft. during Q3 2019, rising by nearly 23% on an annual basis. Bangalore, followed by Hyderabad, NCR and Mumbai, accounted for about 80% of the leasing during the first three quarters of 2019 (2019 YTD). About 43 million sq. ft. of new office supply was added in 9M 2019. Meanwhile, supply addition was up 80% in the first three quarters of 2019, as compared to the same period in 2018. The additions were led by Hyderabad, Bangalore, NCR and Mumbai. The year 2020 is expected to see a continuation of this growth story, with space take-up expected to further strengthen in the short term. Tech is expected to continue shaping office demand even as occupiers adopt newer workplace strategies to realign their portfolios by trying to find the right mix of flexibility and collaborative / incubation spaces within their core workplaces along with adding external flexible options. We expect flexible space operators to continue to expand operations and target secondary markets in Tier I cities and major markets in Tier II and III cities.


Retail demand continued to remain strong in 2019, and witnessed a healthy mix across brand categories of F&B operators, mid-range & value fashion along with entertainment-based retailers. Department store retailers remained active in southern cities such as Bangalore, Chennai and Hyderabad, whereas, fine dining, specialty restaurants and sporting goods’ brands increased their footprint in Delhi-NCR and Mumbai. Supply addition witnessed a dip during 2019 in comparison to 2018. However, it is expected to pick up as nearly 4.0-5.0 million sq. ft. of investment grade mall developments are expected to become operational by the end of 2020. The sector saw investments worth USD 196 million during the period, which is comparable to almost USD 215 million investments in entire 2018.


Leasing activity increased by almost 31% compared to H1 2018, crossing 13 million sq. ft. in H1 2019. 3PL players accounted for about 56% of the leasing activity, thereby driving space take-up during the first half of the year. Recent policy reforms and infrastructure initiatives have boosted this sector, which is likely to attract significant investments in the near future. This is evident from the fact that according to the CBRE APAC Investor Intentions Survey 2019, India was among the top 5 investment destinations in APAC, with industrial and logistics being one of the top targeted segments. In 2020, we expect the overall pipeline for the sector to reach 60 million sq. ft., with leading players accounting for at least 22 million sq. ft. of this supply. We also expect logistics leasing activity to strengthen, owing to consolidation / expansion by occupiers. We also expect the fast growing food services / quick service restaurant (QSR) industry to boost the demand for cold storage warehouses in the coming years. Supply chain integration is likely to remain tech-enhanced, with increasing demand for 3PL and even 4PL services in certain instances.


On an annual basis, residential supply increased by 24% in 9M 2019, compared with the same period previous year. Sales activity too improved by 26% during the same period. The growth can be attributed to the sustained efforts of the central government to strengthen the sector, especially affordable housing. These include setting up an alternative investment fund worth INR 25,000 crore for stalled housing projects, enhancing banks’ lending cap to registered NBFCs for on-lending by housing finance companies, etc. In addition to these steps, the government has launched several flagship schemes such as Smart Cities, Swachh Bharat, AMRUT and Housing for All – all aimed at long-term development of residential real estate. While the NBFC crisis and the resulting economic slowdown have slowed the recovery of the sector, affordable housing continues to drive the sector. 

Capital Markets

Despite the slowing economy, capital inflows increased by more than 30% to nearly USD 4.6 billion in 9M 2019, compared to the same period last year. In fact, the investments in the three quarters are comparable to the overall 2018 inflows (USD 4.8 billion), indicating that the market is expected to attain a new peak by the end of 2019. This is suggestive of the investors’ continued faith in the Indian market despite a weakening economic scenario and the recent NBFC crisis. While investments in core built-up assets were mostly led by private equity and other institutional investors, investments in land were driven by developers aiming at strengthening their commercial pipeline in cities such as Mumbai, Bangalore and Pune. Developers focusing on increasing their footprint in other key markets across India are expected to continue to gain momentum. Major deals include Blackstone’s investments in office assets in Mumbai and Bangalore and ADIA’s investment in a retail development in Gurgaon. However, the availability of built-up investible assets, especially core assets, has become a major concern for institutional investors. Meanwhile, India’s improved risk perception and healthy demand dynamics have resulted in greater capital flows in ‘Greenfield’ assets. The NBFC liquidity crisis has led to a greater focus on core assets, LRDs, due diligence procedures and an increase of 200 – 300 bps in lending rates for developer.  On the other hand, the launch of Embassy REIT has opened up a new asset class for investment in country. Its success can be gauged from the fact that between 18 March and 30 November 2019, the price of a single REIT unit reached INR 445.3 from a launch price of INR 300, registering a significant 48% improvement. The country is expected to see the launch of at least one more REIT in the coming year.


As the Indian economy transitions and its workforce expands, it will offer vast development and investment opportunities for the real estate sector. The growth of cities is going to further influence the country’s-built environment, while technology, demographics and environmental issues will become its new value drivers. Already, workplaces are becoming more modern and open, in keeping with the aspirations of the millennial working population. The logistics industry is embracing technology to keep pace with the increasingly digital times even as retail goes omni-channel with an eye on the smart shopper. Meanwhile, housing is getting more affordable, on the back of government initiatives and the growing needs of young families. The real estate universe is expected to expand sizably in the coming year as new asset classes (REITs, co-living spaces, student housing) make their presence felt.

ALSO READ: 2019: A year of hope and despair for real estate

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