Should you invest now that commercial real estate is rebounding so strongly?
The Indian office market is once more a popular choice among investors.
Office reopenings have revived interest in commercial real estate in India. Back-to-office programmes are now being implemented or reopened by the majority of the larger corporations. This is good news for the office sector, which was one of the fastest-growing real estate segments before the pandemic-caused catastrophe.
The recent report by CBRE also highlighted the positive attitudes in commercial leasing in India. According to the CBRE study, total office leasing in the major Indian metropolises reached 18.2 million Sq. Ft. in Q2 2022, sharply increasing by 61 percent from the prior quarter. Bangalore has been at the forefront of the market's recovery, with Delhi NCR and Hyderabad following closely behind.
Over 80% of lease transactions in India are for spaces between 10,000 and 50,000 square feet. However, there has also been an increase in large-scale transactions (above 100,000 square feet). In recent months, many significant businesses, including but not limited to ABB, Google, Amazon, etc., have rented up sizable areas.
There is an apparent flight to top-tier grade-A deals in desirable areas. It's interesting to note that rental rates have also risen in some areas of Delhi NCR, Bangalore, Chennai, Pune, etc., supported by a rise in demand. The quarterly rates have raised by up to 1.5% in several micromarkets.
Technology and IT firms are the main market drivers. However, demand is also coming from other important industries, like engineering and manufacturing, coworking spaces, the BFSI sector, research and consultancy, etc.
Hot Pick for Investment
For the Indian investor community, the office sector is once again a top choice. Despite the perception that the Indian property market is less risky, the segment's rental yields are poor and often fall between 2 and 3 percent. Co-living is becoming a popular category, but the market is still young.
As a result, investors increasingly turn to the office segment as their go-to asset class. One might easily achieve a higher yield of 6-7 percent by investing in Grade-A assets in desirable areas. Additionally, the cryptocurrency surge is losing steam as financial markets remain depressed. This increases how profitable it is to invest in office space.
Along with investing in high-quality assets, the strata-sales industry is rapidly expanding. The high cost of office assets as a whole restricts investment activity. However, investors with a budget of INR 20–50 lacs can now own assets in desirable properties thanks to strata sales and leasing.
The idea of strata-investment is already well-known in Asian nations like Singapore and Hong Kong. India will likely join the competition soon.
Another area where investors may bet large sums of money is shared or flexible workplaces, where demand is rising quickly. According to market analysts, shared spaces will account for about 35% of leasing over the next 3–5 years. Along with SMBs and new businesses, huge corporations are also using shared/
Disclaimer: The author's personal opinions are expressed here. Before making any investment, readers are advised to speak with their financial planner.
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