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Mukesh Ambani’s Reliance Industries E-comm Plan Will Prop Up Kirana Stores

Several industry statistics highlight the importance of the commercial segment in the Indian real estate ecosystem. The demand for office spaces in the country is estimated to have grown by 58% between 2011 and 2017; IBEF estimates the commercial office stock in India to have already crossed 600 million square feet. The demand for commercial properties has also increased at a healthy pace. Gross absorption is estimated to have grown to 36.4 million square feet between January and September 2018, registering a robust year-on-year increase of 26%.

Thanks to the impressive year-on-year growth, it is interesting to identify the direction it will take in the future. So here are some of the most prominent trends that will define commercial real estate trends in India in 2019:

Reliance’s digital promise will drive the demand for smaller shops

While the Indian economy has been rapidly digitizing, many smaller businesses – particularly the neighbourhood kirana and mom-and-pop stores – are still relatively untouched by the ongoing digital revolution. As such, they are not able to fully realise the benefits that digital solutions bring.

This dynamic, however, is expected to change soon. Mukesh Ambani’s Reliance has announced its plans to launch a new e-commerce platform to empower retailers across the country – starting with over 1.2 million retailers in Gujarat. The platform will be jointly launched by Reliance Retail and Reliance Jio Infocomm and will help offline retailers expand into the online space, thus driving up the demand for smaller brick-and-mortar shops and retail stores in India.

Investors to purchase commercial properties for better returns

Investments into commercial real estate have been popular amongst Indians and NRIs looking to avail robust dividends on their surplus capital.

What makes commercial real estate investments appealing to prospective investors are assured and immediate returns on their investments in the form of monthly rent payments; this augments their income streams, even as their assets appreciate over time.

Demand for co-working and ready-to-move-in spaces to rise

Co-working spaces seem to be the ‘it’ trend in the Indian commercial real estate segment. Offering access to premium office infrastructure and end-to-end support at nominal costs, such spaces also provide an excellent environment to facilitate networking opportunities between professionals and experts from different domains.

Apart from the reduction in costs, many professionals operating out of co-working spaces appreciate the flexibility of work that such communal office spaces provide. Many leading co-working firms also regularly organise investor pitch days and interactions for emerging business ventures operating within their campuses to enable smoother access to growth capital. Little wonder, then, that early-stage start-ups, entrepreneurs, freelance professionals, and even established companies are increasingly choosing co-working spaces over conventional office spaces.

The accelerating acceptance of the co-working concept has driven up the demand for co-working spaces in India. According to a recent report, co-working firms had leased 19 lakh square feet of office space between January and June 2018 – increasing almost 3X year-on-year over the corresponding numbers from the first half of 2017.

Industry-wide PropTech adoption and market digitization

The massive disruption that new-age platforms have created in the Indian real estate ecosystem has generated a lot of interest in PropTech as a means of optimizing operations, enhancing service delivery, and maximizing customer outreach. The use of cutting-edge technological solutions enables PropTech platforms to offer multiple points of differentiation, such as facilitating direct connections between transacting parties by eliminating brokers from the value chain. Some players in the domain have also developed AR/VR capabilities to provide more immersive visual content to end-users, thus helping them make more informed purchase decisions. Such innovative, value-driven features are expected to drive the adoption of PropTech platforms.

These trends are expected to accelerate the PropTech momentum in 2019. In fact, several traditional developers are now exploring collaborations with market-leading digital real estate platforms with a view of leveraging the latter’s tech expertise for customized tech-enabled solutions. There have also been talks of the creation of a $100 million corpus to invest in early-stage PropTech start-ups. This corpus will be aimed at driving growth for emerging high-potential ventures in order to help stimulate the growth of the larger real estate market.

E-commerce boom will accelerate the demand for warehousing spaces

It is no secret that e-commerce, in India, has been growing at an exponential rate. IBEF estimates the industry will grow at a CAGR of 51% – the highest in the world – till 2020, driving annualized revenues to the tune of $120 billion.

Established e-commerce companies such as Amazon, Flipkart, and Big Basket have been aggressively increasing their market presence to capitalize on this massive business opportunity.

This, in turn, is driving the demand for warehousing spaces across the country. Leasing activity in the industrial and warehousing segment is expected to have crossed 20 million square feet in 2018, registering a year-on-year increase of 17%. This demand will accelerate even further in 2019, as e-commerce moves beyond oversaturated urban markets to cater to the needs of first-time digital customers in semi-urban and rural geographies.

Online players to expand into their offline operations

While online commerce continues to grow at an exponential pace, the offline channel remains a key business driver for several B2C industries such as retail.

A lot of e-commerce firms are opening brick and mortar stores to cater to Indian consumers who still prefer to touch and feel the product before purchasing it. These differentiators are now making top online brands adopt a more integrated omnichannel approach to retail. Myntra and Urban Ladder have already launched branded brick-and-mortar outlets in key geographies, with more online retailers expected to follow the trend in coming months.

The rise of artificial intelligence

Technological adoption, once a luxury, is now a necessity. In order to remain competitive and agile in a hyper-competitive, fast-changing industry, players in the domain – both PropTech ventures and traditional developers – will have to be ready to constantly adopt new technologies and enhance their digital capabilities.

Artificial intelligence (AI) and related technologies such as data analytics and machine learning will become critical in helping real estate businesses manage the scale and scope of their digital operations. AI-based solutions could help industry players minimize their costs, streamline processes, and optimize various business functions to swiftly realize greater value and RoI.

The year of Real Estate Investment Trust (REIT)

The country’s real estate sector has eagerly been looking forward to the introduction of Real Estate Investment Trusts (REITs), which will enable groups of investors to make large investments into real estate assets. The first such REIT has been launched by Embassy and Blackstone. However, we believe 2019 will largely be a test year for REITs, with a large percentage of stakeholders expected to hold back and gauge the feasibility of the REIT model and its market reception in India before fully committing to it.

Increased infrastructure investment in tier-2/3 markets

With commercial real estate in large metropolises becoming increasingly unaffordable, emerging tier-2 and tier-3 markets such as Pune, Lucknow, and Jaipur have been making their case for stronger infrastructural investments. These cities offer more space for development at significantly lower prices. Moreover, since local governments are also eager to bring business and development into these areas, real estate players can expect better regulatory and institutional support.

Leading property developers, especially those already with ongoing residential projects in these regions, can, therefore, be expected to launch a slew of commercial projects in these cities in 2019. Corporate businesses are likely to follow suit by leasing office spaces in these areas, as they aim to achieve deeper market penetration while bringing down their costs of operations.

Technology, necessity, opportunity – these are the factors that will drive all future growth for the Indian commercial real estate industry, which stands on the brink of a major transformation. The trends mentioned above outline the sector’s future roadmap, highlighting the need for players in the space to adapt to this new tech-led, growth-oriented paradigm.―Financial Express

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