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Real estate sector gaining lost ground in 2021
Real estate sector gaining lost ground in 2021

January 3, 2022

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2021 was a year of ups and downs. The real estate sector faced a slowdown due to the second wave of Covid-19. But as the second wave subsided, the sector bounced back and recovery in the market has already begun.  The year 2022 will set the stage for higher confidence amongst owners, investors and occupiers of real estate. There is some uncertainty around due to the new Omicron variant. However, as things stand now, we are learning to live with the uncertainties.

Office strategies to be driven by agility

Re-entry of employees was a major theme in 2021 and we see that extending well into 2022 as well. Driven by technology companies, office absorption is likely to be around 30-35 million sq ft in 2022, about 15-20% higher than the estimated absorption in 2021. Occupiers have become more confident and are leasing large spaces, as seen from Q3 2021. After adjusting for six quarters, rents will stabilize as office demand starts coming back. However, rental recovery will be slow and uneven due to increased vacancy levels and significant supply pipeline in many micro markets.

While return to office plans are under discussion, companies are redefining the way offices are used. They are focusing on future-proofing offices and making them hubs for collaboration and innovation. Flexible workspaces with higher staff to desk sharing ratios, variety of seating arrangements and more collaboration spaces will remain at the centre stage as occupiers formulate hybrid work models. Going forward, we will see accelerated adoption of technology and health and safety systems at the workplace to improve efficiency and boost overall productivity. Moreover, sustainability initiatives, retrofitting and upgradation will be the key themes that occupiers will focus on.

Warehousing: A pandemic-proof sector

The warehousing sector has emerged as a pandemic-proof sector, led by demand from pharma, FMCG, e-commerce and 3PL companies. These occupiers are preferring high-grade specifications in warehousing. Almost 59% of the total warehouse leasing was in Grade A facilities.

Next year will also see significant in-city warehousing demand from grocery delivery players. Startups in the hyperlocal delivery space such as Dunzo, Swiggy and BigBasket are delivering essential goods within aggressive timelines of 10 to 30 minutes. Such companies will steer demand for in-city assets and hub-and-spoke model of warehousing. The market will also see sizeable repurposing of defunct urban spaces into warehousing spaces. We are already seeing retail space being converted into dark stores and in-city warehouse centers.

Institutionalization of ownership in core warehousing assets is on the rise. Developers are tapping global and institutional sources of funds to scale up. Office and retail investors are increasingly buying warehouses near cities to diversify portfolios.

15-minute city concept to propagate new dimensions of living

In the residential segment, larger spaces with well-defined study and work areas have become a necessity with the work from home and online classes. Homebuyers have started preferring larger homes in suburban regions of tier I cities. Sustainable, healthy and safe living environments are the primary focus of homebuyers, with increased time spent indoors. Buyers have also started considering residential units in large, self-sustained townships, with multiple amenities.

Interestingly, the French concept of the 15-minute city has gained prominence globally post-pandemic, due to changing lifestyles. We believe that Indian cities too can benefit from creating neighborhoods where all basic human needs can be met within a 15-minute walk time. Integrated townships offer a more sustainable mode of living to its residents, and more efficient micro-governance. Going ahead, integrated mixed-use projects can gain traction in cities based on several factors: a desirable location, a cohesive sense of community, and a motto of live, work and play.

Way forward

Return to office and hybrid work policies will push offices to adopt more flexible work principles. Investors’ confidence is returning to the residential sector. At the same time, industrial and warehousing sector will see more institutional and global capital. Some other sectors that will do well include data centers, co-living and healthcare. The year 2022 will be one where we will see stakeholders innovating and pivoting to thrive in challenging times. Adoption of technology will increase across assets and the real estate stakeholders will action. 

- By Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers 

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https://www.linkedin.com/company/colliers/ 

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Colliers (NASDAQ, TSX: CIGI) is a leading diversified professional services and investment management company. With operations in 66 countries, our 18,000 enterprising professionals work collaboratively to provide expert real estate and investment advice to clients. For more than 28 years, our experienced leadership with significant inside ownership has delivered compound annual investment returns of approximately 20% for shareholders. With annual revenues of $4.5 billion and $98 billion of assets under management, Colliers maximizes the potential of property and real assets to accelerate the success of our clients, our investors, and our people. Learn more at corporate.colliers.com, Twitter @Colliers or LinkedIn.

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