Commercial real estate likely to see uptick in 3-6 months : Deloitte India’s Vijay KR

Despite rising consumer prices, apartment sales are experiencing an upswing after the second wave of Covid infections. On the flip side, commercial properties, which include office space, are expected to experience better absorption in another 3-6 months as people make it back to the office after the effects of the Omicron variant become more noticeable, says Vijay KR . Partner of Deloitte India.

In an interview with BusinessLine, he talks about the current real estate trends, the prospects for 2022 and how new asset classes – warehousing, data centers – are attracting interest from institutional investors.

What are the living trends for 2022?

Residential property sales are booming and are expected to continue through 2022. There is a backlog in the market and buying habits have changed with the demands of working from home. People are converting to larger apartments – from 2BHK to 3BHK – keeping in mind to keep a room aside for work requirements.

In addition, home loan rates are low, state governments have announced stamp tax cuts, and the market is filled with construction and construction projects that will resume after the second wave. At Deloitte, we’ve found that 74 to 75 percent of CXOs are optimistic about rising residential demand.

Then there is also a concept of people investing in new assets where home sales have come back into play.

Additionally, the center has also stepped in by funding stalled homebuyer projects that have been well received.

The stock rally and the number of listed real estate companies is another clear indicator of the industry’s recovery.

Do you also expect commercial real estate to run at full speed again?

In the case of commercial real estate, the slower decline is expected to continue over the next three to six months. People rely on hybrid models. But even here, if normalization takes place, the decrease will increase.

Yes, some plans to return to office were made when the second wave of infections wreaked havoc; but normalization began towards the end of the year, after the holidays.

Another interesting fact about office space is that with the introduction of social distancing norms, the footprint increases to as much as 120 square feet per person. From the normal benchmark of 125 sq ft per person, it had dropped to 80-100 sq ft per person. It started moving up to 100 sq ft and continues to float upwards. In short, the need for larger office space will increase.

Banks and financial institutions will be among the first to return to normalization; but IT and ITES will be among the last to come back. In terms of markets too, Mumbai would see a higher and faster recovery, while IT-driven cities like Hyderabad, Pune and Bengaluru would experience slower absorption initially.

In terms of rent, I believe Class A office space will hold up; or even move up. It is very unlikely that major price losses will occur immediately.

What about other segments?

When it comes to coworking spaces, demand will also rise and occupancy will rise. For example, with Grade A offices under construction, most large companies will look for hassle-free, plug-and-play solutions. Since IT and ITES view work from everywhere, it will be the co-working spaces that will decrease.

Does Omicron Announce a threat to recovery?

We do not yet know how this variant will develop. It is spreading rapidly. Immediate numbers don’t seem to be a cause for concern. The sales of residential buildings are not affected. At most, there may be delays in the absorption of commercial space. However, one thing about new varieties of infection is that the climax occurs faster. And after that, the recovery in economic activity is even faster. So let’s wait and see.

Do you think the Indian real estate market is catching the interest of institutional investors?

International players are already investing smartly here. In 2021, Blackstone, Brookfield, and several others invested in warehousing, commercial office space, data centers, and so on. Developers also monetize assets. We saw two REIT listings despite the pandemic, and more are expected. I think this is a good time to start investing in Indian real estate.

In addition, alternative asset classes, ie warehouses, data centers, etc., are becoming increasingly popular with institutional investors.

What are the prospects for investments in warehouses and data centers?

In India, the demand for bearings is increasing. On the one hand, large warehouse requirements are driven by e-commerce players and their fulfillment centers; while smaller warehouses – within the city – are driven by the demand for or increasing rapid trade, e.g. B. 30 minute deliveries etc.

The demand for data centers increases with increasing internet penetration and with a focus on 5G. In addition, the Data Protection Act mandates that data from Indian users must be stored in the country that is expected to give the segment a boost.

Is there an outlook for commodity price movements?

To be fair, price movements in key items such as steel, cement, copper, and in some cases work and paint, are cause for concern. Most commodity prices have risen and initial reports suggest that this will be the trend through 2022.

Take TMT prices for example. They have increased from Rs 38,000 – 40,000 per ton to around Rs 55,000 – Rs 60,000 per ton.

And the high raw material cost cycle is likely to continue for some time. We don’t see an immediate decrease.

The increase in raw material costs was 20-30 percent, depending on the construction phase of the project. In contrast, the cost increase for completed projects is 10-15 percent, with some micromarket-specific variations.