Commercial real estate (CRE) might be insulated from the volatility of the market, but the demand and supply of CRE in cities across India depends on how viable it is for businesses to run their operations from a particular location. There are several factors that contribute to this, apart from the usual ease in connectivity and presence of other businesses in the area. Businesses depend on people, and thus, the liveability of cities also plays an important role in determining if new commercial real estate opportunities will come up frequently in the area. In any city, there will be several micro markets with each of them also having their own market dynamics that will dictate how the CRE investment scene will fare. As an investor in commercial real estate, one will need to keep tabs on the micro markets’ performance in order to know if a city will be beneficial in terms of investment. Sometimes a city might not show positive growth, but micro markets within might say a different story. In short, the best cities for CRE investment can keep changing. Don’t want to do all the heavy lifting involving research? Stick around to know how Strata can help.
Unlike micro markets that focus mostly on advantages that are beneficial to businesses, when looking at cities, one has to factor in a few more aspects, like -
- Employment Opportunities
- Infrastructure Development
- Safety and Security
- Water & Electricity Supply
- Governance and Socio-Political Stability
- Sustainable Environment
- Healthcare Facilities and Education
- Mobility and Transportation
While these factors are important, one will also need to consider the average rents in the area, so your investment does not get locked into an underperforming asset.
So, which are the cities on the radar for 2022? Let us take a look at them, based on the aspects mentioned above.
It has been predicted that the city will witness a 2-4% overall annual growth. Since the pandemic situation has been considered the norm, there has been a sizable increase in the variety of apartment and housing complexes as well. The Ahmedabad Smart City project is on and it has contributed to the city being considered among the top 20 smart cities across the country.
Apollo, Sterling, Shalby are among the major healthcare names in the city. Ahmedabad also houses an Indian Institute of Management alongside St. Xaviers College and BJ Medical College. While being the home of many MNCs and IT companies, Ahmedabad also harbors franchises of companies like Tata Motors, Suzuki, and Honda.
Considering state policies, the Ahmedabad Urban Development Authority plans to develop at least 6800 hectares of land in the city.
From the commercial real estate POV, Ahmedabad has a positive outlook on office spaces and retail spaces. The rent is going to be more or less stable, with more supply to be hitting the market in the coming months. Premium mall space to the tune of 0.2 msf got added to the inventory in the first quarter of 2022, with the fashion and lifestyle sector contributing to the majority of leasing from among the nearly 85000 sf of space leased in premium malls. In the second quarter of 2022, Ahmedabad saw a 2X growth in the office sector. A gross leasing volume of 0.52 msf. was recorded along with a y-o-y increase of 83%. Flex workspaces were among the major contributors to the office space demand, while IT and BPM were the ones that lead the leasing trend.
Kolkata has been among the top in the list of cities with affordable housing across India. It is also a city where the cost of living is considered to be one of the lowest. Residential units launched in the first quarter of 2022 jumped by 126% y-o-y with peripheral submarkets contributing around 47% of quarterly launches. The state policies have extended stamp duty and circle rates cut up to September 2022. A 60% waiver has been allowed on the interest that is obtained from property tax dues. Speaking of commercial real estate, as per Cushman & Wakefield, retail spaces have been performing quite well, while the office market is on recovery as well, recording a 13% y-o-y growth in Q1 2022, despite the pandemic situation.
Kolkata has the Rabindranath Tagore International Institute of Cardiac Science and the Apollo Medical Super-speciality Hospitals. University of Calcutta, National Institute of Fashion Technology and an Indian Institute of Management call Kolkata home. Among employment opportunities, there are quite a few agro industries, steel and mining companies and IT firms that have set up shop in Kolkata.
Hyderabad is a dream destination that combines low housing cost and high quality infrastructure. Commuting via its affordable transportation facilities makes it a compelling destination for office-goers as well. It is well connected via a network of routes to the main highways like NH65, NH44, NH765, and NH163. State policies are aimed towards modernizing infrastructure and providing a supportive ecosystem for existing and upcoming entrepreneurs. This makes the city a great choice for investing in CRE. In terms of facilities, Apollo, Aware Global and Continental Hospitals are the larger healthcare providers here. An IIT campus exists alongside Hyderabad University and National Institute of Pharmaceutical Education and Research. Hyderabad was the previous IT hub of the country and many tech giants like Google, Facebook, Apple still have offices here, along with IKEA and Amazon.
The city has recorded a 2x growth in Q2 of 2022 as compared to 2021, with a supply of 13000 units in the residential sector. WHen it comes to the commercial space market, gross leasing activity stands at a seven-quarter high of 3.43 msf in this quarter and recorded a growth q-o-q growth of 80.6%. IT-BPM has been the top contributor with a share of around 35%, followed by BFSI with 21% and the Engineering and Manufacturing sector with 11%.Close to 2,50,000 sf of leasing activity was seen in Hyderabad’s malls and main streets in Q2 2022 – a growth of 8.2% from the previous quarter.
Bengaluru has been leading the office space market across the country, with a significant gross leasing of 6.9 msf., resulting in a 2.4X growth q-o-q – the highest ever the city has seen. From the perspective of investing in office spaces, this is probably the best bet for years to come, with the state having intensive focus on developing the infrastructure even further and adding to connectivity options via the metro rail network. It is easily accessible to major cities like Chennai, Mumbai, and Hyderabad, further increasing the profitability of investment. The city boasts of great hospitals like the Narayana group, Apollo chain, et al. It is also home to many premier educational institutions along with an Indian Institute of Management. Adding to the residential demand as well, the city saw a 12% increase with 9,860 units launched in Q2 2022. The total supply was a 2.7X jump from the same time in the last year.
One of the most expensive cities for real estate investments, but also the one that offers generally good ROI when compared on similar grounds. When it comes to residential real estate, areas like Malad West, Mulund, Thane, Kandivali, and Goregaon are quite popular due to good connectivity to the main city and the variety of luxury housing at affordable rates. In terms of healthcare, Seven Hills, Kurla Kohinoor, Nanavati, and Parel Global hospitals are worthy of mention. Considering education facilities, St. Xaviers, KJ Somaiya College of Arts, and Mumbai University are present, along with an IIT campus. Key employment opportunities crop up in textile, electronics, petrochemicals, entertainment, IT, and manufacturing companies. The Maharashtra government has reduced construction premiums to half of what they were a year before, allowing for an increase in property investments in Mumbai. The Jal Jeevan Mission Scheme improved water and electricity supply for about 4400 urban local bodies in 2021 and they plan to break the record in 2022.
In terms of commercial office space, Mumbai’s first-half value of gross leasing volume was 22-50% higher compared to the figures of the same time in the last 3 years. BFSI, Engineering and Manufacturing, and IT-BPM lead the leasing activity in office space. Mall leasing has also seen a significant growth, owing increased footfalls surpassing pre-COVID levels across quality malls.
Chennai has been another popular city considering growth in real estate, be it commercial or residential. The city’s connectivity network, and proximity to major economic centers are major reasons for the sustained growth rate of the infrastructure and popularity. In the second quarter of 2022, Chennai witnessed a launch of 1,950 units which is higher by 51% on an annualized basis. The residential hotspots in the vicinity of metro corridors recorded a majority of launches in this quarter. Apart from having an IIT campus, Chennai also houses an NIFT and IHM campus as well. Presidency College, CEG Anna University, Loyola College, and Sri Ramachandra Institute of Higher Education and Research are other noteworthy names among the educational institutions present in the city. Among the healthcare facilities, Chennai has Sri Ramachandra Medical Center, an Apollo hospital, Frontier Lifeline, Sankara Nethralaya, among others. IT-BPM and manufacturing are the major employment segments in Chennai, with names like TCS, Infosys, Cognizant, HCL, and TVS Group leading the charts. A large number of people are also employed by the Government of Tamilnadu, as per the data here. State policies are friendly towards businesses and entrepreneurs, allowing for a ripe environment for investing in commercial real estate. In the first and second quarters of 2022, Chennai has seen a major uptick in the growth of the office and retail space. In the office segment, the leasing was led by the IT-BPM sector, closely followed by engineering and manufacturing. In the second quarter of 2022, retail leasing also saw significant growth on the main streets of Chennai.
What we have mentioned in this article is a summary of how the cities have performed across the quarters in terms of demand and supply, and how to understand what factors play a role in improving the investment scenario of a particular city. But this involves keeping a close tab on the news and updates from across India. Not to forget that once you zero in on a city, you still have to find a suitable asset that offers a good ROI in the future. Even if you manage to do that, you will still have to invest multiple crores in buying the said asset on your own, and then also have a list of probable buyers ready at hand, if you need to liquidate your investment. Due diligence is another elephant in the room to address, to ensure the asset you have purchased doesn’t involve any legal scuffles. Want to avoid all that and still reap the benefits of investing in commercial real estate by just using your smartphone? At Strata, we make all that possible via fractional ownership. Invest in Grade A commercial real estate across India without having to bother about a site visit or being present there in person.