There can be no denying the fact that the COVID-19 pandemic and the subsequent lockdown threw life out of gear in 2020. Almost every industry suffered and is suffering immeasurably and real estate is no different. However, with the lifting of lockdown situation has shown signs of returning to normal. This augurs well for the commercial real estate occupiers who have seen some very difficult and uncertain times as the pandemic-led anxiety led to the requests for waiving rent, lease renegotiations as well as discussions for rent deferment.
The concept of work from home has seen companies setting up multiple office spaces in micro-markets that support their existing employee demographics. The phenomenon is expected to continue even after the COVID-19 vaccine is ready to be used in the country. Companies are expected to opt for space after considering such factors as minimal capital investment, rental costs, flexibility in terms of the lease, minimum commute time, last-mile connectivity, and social-distancing.
Such a situation augurs well for warehouses, data centers as well as co-working spaces and it is in these areas that investment is believed to yield better returns.
Let’s dig deep and try to understand the opportunities that these areas offer.
Data Centre
Thanks to the COVID-19 pandemic we have no other option but to remain digitally connected. It would not be wrong to state that it is because of the digital infrastructure that the impact of lockdown has been somewhat mitigated. No wonder then that industries, institutions, as well as individuals have opted for cloud adaptation and data consumption is at an all-time high.
As per a JLL India report, it is expected that the data center industry will add 703 MW capacity by the end of 2025 which means an opportunity of 9.3 million sq ft of real estate development. Mumbai is believed to acquire a large chunk of this imminent opportunity because of its existing data center infrastructure, followed by Chennai and Hyderabad.
5G technology, expected to be launched in 2021, is further expected to push the adoption of IoT-enabled products in the Indian market. Though the market for big data and IoT is still in its infancy it has great potential to be the biggest pull for data center investments in the country.
Moreover, government initiatives like Digital India and emphasis on self-reliance and data protection through data localization are expected to enhance the volume of data in the country which will lead to increased demand for data centers and cloud services.
Warehouses
The outbreak of the COVID-19 pandemic led to a disruption in the supply chain across industries in the country that has given rise to the increased demand for storage space from the daily necessities, electronics, and FMCG sectors.
Moreover, growing demand for cold chain and pharmaceutical warehouses as well as the growth in the manufacturing and e-commerce sector is further expected to fuel the growth of this segment in 2021.
It should also not be forgotten that e-commerce is believed to thrive in the world post COVID which would give a boost to increased demand for new warehouses especially the multi-level warehouses within city limits.
The government has created a productive field for developing warehouses. It has also reduced the total approvals required to set up a warehouse in the country from 33 in 2015 to 15 by the end of 2019. Similarly, the time required to construct a warehouse has been reduced to 3.5 months from 6 months.
As per a recent report published by US-based Binswanger Commercial Real Estate Services and ANAROCK Group, smaller cities in India have a fabulous opportunity for Grade A warehousing development.
The message, therefore, is clear. The enthusiasm to transform India into a global manufacturing hub has led to the demand for developing Grade A warehousing to gain momentum across the country making it ideal for investing in this segment.
Co-living and Co-working
Co-living, as well as co-working segments, saw a lean period in 2020 because of the global pandemic which shifted the focus from ‘shared’ to ‘exclusive’ with hygiene and safety gaining prominence.
It may be a while before co-living makes a comeback, co-working however will gain strength as it throws an alternative between working from home and working from the office.
As companies open up post lockdown they have shown an inclination towards leveraging flexible space to cut down capital expenditure and create cost savings while facilitating split teams and de-densified requirements.
A recently published report by JLL India points out that India’s flexible space market will cross 50 million sq ft by 2023. It also points towards the fact that India would witness deeper penetration throughout 2021 and beyond.
In present times Bengaluru and Delhi NCR together account for more than 50% of the flex space in India, with Hyderabad and Mumbai closing in as 3rd and 4th.
In 2021 most corporates are expected to adopt co-working spaces that would allow their staff to work from a flex workspace close to their homes.
There is also a strong possibility that co-working players may reposition themselves that would give a thrust to the commercial real estate market of the country in 2021 making the segment profitable for investment.
Final Thoughts
There can be no denying the fact that the COVID-19 pandemic has brought about a change in the way real estate was looked at and perceived in India. This can be understood from the fact that in 2021, apart from pure commercial and residential segments, the real estate sector has tremendous prospects for such areas as warehouses, data centers as well as co-working spaces and these are the areas investors must carefully ponder about investing if they want better returns.
