Indian Real Estate 2020 – Key Insights Into The Future Of Indian Real Estate

By Author: Citadel
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In a rapidly growing economy like India, the great migration to the cities, growing population, and a swelling middle class are creating a desperate need for more urban real estate. In the past few years, demand for private capital for commercial real estate investment and supporting infrastructure has increased immensely. In the years to come, the commercial real estate investment industry will find itself at the epi center of rapid economic and social growth, which is already transforming the environment.

Here are 4 key insights about the future of Indian commercial real estate by the year 2020:

1. Massive expansion of cities due to migration By 2020, the 21st century’s great migration to the cities will be well underway. Tier 1 and 2 cities will be swelling with immigrant manpower from lesser urban regions. Fast-growing cities such as Pune and Bengaluru will be at the crux of the commercial real estate revolution. Even developed cities like Mumbai will be urbanizing, albeit at a slower pace. The volume of building activity will be huge, expanding the country’s inventory of institutional-grade real estate. ...
... Global construction output is expected to almost double to US$15 trillion by 2025, up from US$8.7 trillion in 2012. Emerging markets in Asia will be the fastest-growing region. Alternatively, the emergence of technology might change the trend of migration. There is a huge opportunity for the warehousing industry to tap into the rural agricultural market thereby reducing the pressure on the urban cities. The reduced migration will also lead to change in construction practice with more mechanization to achieve standardization and faster production.

2. Changes in population demographics will drive changes in demand for commercial real estate

Demographic shifts will affect demand for commercial real estate fundamentally. The burgeoning middle-class urban populations in India will need far more workplaces. Meanwhile, the country’s aging populations will demand specialist types of real estate, while their requirements for workspaces will moderate. Smart Cities will attract the young middle classes, especially in emerging markets like Vizag and Coimbatore. As intense competition for space increases urban density, office sizes are likely to shrink. Developers will need to become more innovative about how they use space. Population growth and aging will lead to several real estate subsectors emerging. While office, industrial and retail will remain the main sectors, affordable health care and retirement will become significant subsectors. We will witness vertical rise in most cities since the dense urbanization will always put pressure on the infrastructure of growing cities. With urbanization moving at geometric proportion while infrastructure getting incremented in arithmetic pace there would be a realignment to move towards increasingly vertical cities.

3. Emerging markets’ growth notches up competition for assets
Real estate has played a large part in driving economic growth in India. Even as growth moderates in many saturated markets such as Mumbai and Delhi, the pace of construction activity remains rapid, increasing investment opportunities. By 2025, over 60% of all construction activity is forecasted to take place in emerging markets, up from just 35% in 2005. The growth of emerging countries like India is rapidly creating powerful new real estate players and new asset managers. Thus, there is both rising competition for commercial real estate assets and budding competition within real estate asset management.

4. ‘Sustainability’ dictates design principles of commercial buildings
By 2020, it’s likely that buildings will need to have sustainability ratings. What’s more? The concept of sustainability will have widened to mean creating ‘places’ where people relish living and working. To meet this new requirement new developments will be designed with green spaces, better air quality, spaces for social gathering and so on. Already, developers are integrating sustainability features into commercial buildings, office spaces, malls, and even new cities.

For commercial real estate developers, the move towards greater sustainability in building design presents opportunities and risks. While sale prices do mirror buildings’ sustainability credentials to a degree – through a ‘green premium’ – this is currently limited to certain types of prime real estate in advanced economies. Sustainability will evolve from being limited to workspace development to residential & leisure segments. This will evolve into larger well planned integrated developments with the underlying theme of “Live+ Work+ Play”. Responding to an increasingly well-informed consumer base and, bearing in mind the aspect of globalization, Indian commercial real estate players have shifted gears and accepted fresh challenges. The growing need for commercial real estate across cities has led to increased investment in the sector. The growing flow of FDI into Indian real estate is encouraging increased transparency. Developers, to attract funding, have revamped their accounting and management systems to meet due diligence standards. These measures indicate a spell of prosperity on the overall CRE market in India.