Publication: 99acres, 9th March 2021
Due to its strong fundamentals, growth prospects, and resilience, the Indian commercial real estate market has been on investors’ radars for quite a long time. Here we attempt to pinpoint the exact driving factors behind this resilient market and its investors’ continued interest.
According to a Knight Frank report, the Indian commercial real estate market has attracted equity investments worth over USD 15.4 billion since 2011. Further, NCR has accounted for the second-largest quantum of private equity (PE) investments since 2011, especially because of strategic location and infrastructure development.
Though the growth sentiment remained muted for a few months amidst COVID-19, the revival of economic activity post-COVID-19 lockdown and various government initiatives have set the pace for recovery in commercial real estate. According to a report by JLL, gross leasing volume grew to 14.7 million sq ft in Q3 of 2020, witnessing a whopping 138 percent increase QoQ.
Commercial real estate in Gurgaon and Noida
Over the past few years, Gurgaon and Noida have emerged as business hotspots, welcoming many MNCs, Indian companies, and start-ups to set up their office(s) in business parks. The commercial real estate segment has also performed much better than the residential realty in terms of ROI over the last few years. This is significantly true in business hotspots like Gurgaon and Noida. As a result, more investors and buyers are exploring this investment avenue. Investors are leveraging this opportunity to invest in a commercial space and rent it out to prospective customers. Indeed, it is a win-win situation for real estate developers, investors and companies.
While Gurgaon has been a premium location for commercial real estate for almost a decade now, Noida is also experiencing a high growth trajectory from the past few years. The reasons are – many saturated localities in Delhi, the proximity of NCR to the national capital, and modern options for commercial office spaces.
In fact, a JLL India report highlights that Noida outpaced Gurgaon for three consecutive quarters since Q2 of 2020. In 2020, Noida stood at around 1.78 million sq ft (MSF) of net office space absorption, while the value for Gurgaon is 1.4 MSF. Net absorption includes pre-commitments in buildings that are getting operational in the particular quarter and fresh leasing in existing buildings. It excludes renewals, churns deals and pre-commitments in future supply.
Why is Noida attracting more corporates?
The city has better road and metro connectivity, abundant power, affordable commercial space, housing, competitive rentals, and Grade-A office space availability.
The way forward
Real estate has traditionally been popular as a safe investment option. Due to the growth prospects, assured, and lucrative returns, the commercial real estate segment will continue to remain investors’ preferred choice, especially in NCR. Further, with the burgeoning population, a series of infrastructural developments, ease of doing business and relative affordability of land and labour, India is an attractive option for companies looking to establish their base in South Asia.
IBEF’s Real Estate Industry Analysis 2020 predicted that the real estate sector in India would likely reach USD 1 trillion by 2030, contributing 13 percent to the country’s GDP by 2025. Additionally, the pandemic has made people realise the importance of investments to survive uncertain times. As a result, real estate has become the preferred investment option in a volatile market scenario. Real estate investments are growing in demand due to various benefits associated with it – it appreciates with time, can be used to get more cash in bad times, a source of passive income, real asset class, tax benefits and secure investment.
Triggered by strong fundamentals, infrastructural developments, and conducive policy reforms, the commercial reality in Noida will likely embark on a higher growth trajectory, contributing significantly to India’s economic story.