Real estate investments expected to increase by 5-10% in 2022; tech firms to dominate leasing

Total investments in real estate in 2022 are expected to rise by 5-10 percent of $5.5 billion recorded in 2021 to reach near the pre-pandemic levels of 2019 and gross absorption in office space is expected to touch 45-47 million sq. ft. in 2022, a growth of about 13-14 percent from 2021, according to a report by CBRE India titled Market Outlook Report 2022. Capital flows are expected to continue to be led by development sites / land and the office sector, whereas the industrial and logistics and residential sectors could also see higher equity inflows, the report that was released at the CII annual conference on real estate said. The theme of the conference was Reinvigorating the Real Estate Industry in 2022 and Beyond. Metros are expected to lead investments in office, retail and development sites and I&L to extend to tier-II cities. Mumbai, Delhi-NCR and Hyderabad drove investment activity in 2021 with a combined share of nearly 60 percent in total investments. The aforementioned cities along with Bengaluru are expected to remain on investors’ radar in 2022, with major focus expected on office, development sites and I&L assets, it said. With the emergence of tier-II cities as the new engines of warehousing demand, there is likelihood of investor demand for such spaces in these locations. This is largely on the back of increased e-commerce penetration, steady income growth, higher savings and aspirational spend patterns seen in such cities, it said. Impact of Russia-Ukraine war The report also said that the Russia - Ukraine conflict has also added to the pressure on building material costs, considering that the two countries cumulatively account for around 10 percent of the global steel trade. Russia is also a significant producer of aluminum and nickel. This would add to the pressure faced by the developer community, further raising the cost of construction, it said. Commercial leasing in 2022 Technology firms would continue to dominate leasing in 2022 while flexible space operators, BFSI, engineering and manufacturing and life sciences segment are expected to contribute to the growth in office space take-up significantly. Similar to 2021, Bengaluru, Hyderabad and Delhi-NCR are expected to continue to drive transaction activity in 2022, the report released at the CII Conclave said. Leasing by flexible space operators is also expected to grow, with their stock expected to touch 47-48 million sq. ft. by the end of 2022. A similar trend is expected to be displayed by engineering and manufacturing companies, considering the manufacturing sector’s potential to contribute more than $500 billion annually to the global economy by 2030. Additionally, the fintech sector in India is expected to witness an incremental valuation of around $100 billion from 2021-25, which would lead to a rise in space take-up by BFSI firms in the coming years, it said. The report also noted that SEZ supply would mostly be led by Hyderabad and Delhi-NCR, while non-SEZ supply would be driven by Bengaluru, followed by Delhi-NCR and Hyderabad. 2022 to witness uptick in residential launches As for residential, an uptick in new launches is expected particularly in Pune, Mumbai, Hyderabad, Delhi-NCR, and Bengaluru. However, this steady supply infusion may pose some risks to delivery timelines and execution capabilities. It could also create unsold inventory pressures, especially amidst rising capital values and the probability of increasing home loan rates (due to anticipated monetary tightening). In 2021, affordable and mid-end segments together accounted for nearly 80 percent of the total sales – a trend that is likely to continue in 2022. In the premium / luxury segment, fuelled by the anticipated appreciation in capital values, there is likelihood of renewal of investor confidence and increased activity by HNIs and NRIs as well, the report noted. “The second wave of the pandemic was a blip on the Indian economy and by extension to the real estate sector. We have come a long way since then. Leasing activity across all sectors and segments has witnessed an uptick in the past six months and we expect this growth to continue into 2022. In fact, a few sunrise sectors such as I&L are expected to surpass pre-pandemic levels as well in terms of leasing as well as supply addition,” said Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East & Africa, CBRE. “We also expect the India market for alternate segments such as DCs, life sciences, etc. to mature further, enabling investors to diversify their portfolios as well as provide more investment opportunities,” he said. Alternative Investment Funds to become major source of real estate funding As the focus of some of the prominent HFCs and NBFCs turns away from corporate loan books to retail loan books with an aim to strengthen their balance sheets, Alternative Investment Funds are expected to become a major source of lending to the CRE sector going forward, the report added. Source: Money Control