Factors Driving Indian Commercial Real Estate Growth

While the global economy has been struggling with headwinds, the Indian economy has showcased extraordinary resilience. The country today possesses the fifth-largest economy and is projected to attain the third position by 2029, as per the International Monetary Fund. As per S&P Global, India’s nominal GDP is projected to increase from USD 3.5 trillion in 2022 to USD 7.3 trillion by 2030.

As a result of this economic boom, the demand for commercial real estate has been at an all-time high in the country. Despite the challenges posed in the years 2020 and 2021, such as the pandemic, ongoing global warfare, and shifting global manufacturing and supply chains, the net absorption levels have largely remained positive. In fact, as per industry research, the net absorption rate in 2022 exceeded the 5-year average of the pre-covid period.

Another study by a globally renowned Real Estate Consultancy reinstates this sentiment and predicts that commercial real estate in India will continue to grow steadily and sustainably in the near future. The market’s upbeat mood has led to the commercial real estate market becoming one of the most sought-after in the economy. In this blog, we will discuss some of the factors that have driven the growth of commercial real estate in India.

The pandemic wreaked havoc on all sectors of the economy, but when it comes to commercial real estate, the sector has been irrecoverably transformed. While many companies shifted to a remote work mode during the pandemic, the year 2022 has led to ‘return to work’ with many companies opening their doors again.

However, it must be kept in mind that the office space that the modern workforce desires is far from traditional offices. The future of work desires workspaces that are equally modern, with coworking spaces being one of the most desired commercial spaces in the contemporary real estate market.

The pandemic has also brought the conversation on environmental conservation and health into the limelight. Officegoers today prefer going to workspaces that are sustainably designed and operated, in addition to being ones that are curated to ensure the maximum safety of the employees. This has resulted in an increasing demand for green office spaces, with India accounting for the second largest green offices in the world.

Further, the removal of restrictions due to the pandemic has led to the reopening of vacancies in Grade A office spaces. Industry research states that this would result in Grade A space reaching 1.2 billion sq. ft. by 2030 in India.

There has also been a major surge in demand for shop-and-Office spaces in India. In Delhi-NCR, there has been a 30–40 percent increase in the launch of SCO plots. This is due to the fact that these places provide an ingenious combination of retail spaces and commercial spaces, so the employees of the latter always have plenty of space for their recreational activities, and the former has a customer base.

As discussed above, the Indian economy has been undergoing a period of significant growth in the last two decades. While the world has been struggling with the ramifications of the Global pandemic, the Indian economy was labelled as the ‘bright spot’ by the International Monetary Fund.

The Indian government’s liberal policy environment has led to an outpouring of foreign direct investments in the country. The country’s easing up of the FDI regulation led to the  country receiving a record level at US $ 46.03 billion in FY 2021-22.  Further, the state and union government agencies have worked to develop the infrastructure, with the country today being home to a skyline decked with highrises, progressive transit infrastructure like Metro, etc.

The government has also introduced a series of reforms such as RERA and Smart Cities Mission, to increase the investment potential of the country. The Real Estate Regulatory Authority in particular has transformed the Indian real estate sector, making the industry more transparent and accountable.

One major reason for the growth of the commercial real estate sector is the demographic advantage the country has. The country has 600 million people between the ages of 18 and 35, with the demographic dividend expected to peak in 2041, when the working-age group will account for 41 percent of the Indian populace. This, in addition to a relatively affordable real estate price, economic stability, growing infrastructural prowess, and a healthy talent pool, has led to many multinational companies establishing and expanding their presence in India.

To summarise, the Indian commercial real estate sector is experiencing a remarkable growth trajectory driven by a confluence of factors. The resilience of the Indian economy, the evolution of workspaces, the increasing demand for green and sustainable offices, the favourable policy environment, and the demographic advantage of a youthful workforce have all contributed to the sector’s unprecedented expansion.