The high inflation rate has resulted in a 10%-12% increase in building costs, affecting developers’ expected cashflows and project completions.
Commercial Leasing In India Increased Threefold In The June 2022 Quarter
Commercial office space leasing in India reached 14.7 million square feet (MSF) in the Q2 of 2022, a threefold increase from the previous year.
Based on Collier’s research, vacancy levels fell 100 basis points to 17%, driven by strong demand from IT and flex occupiers and a constant stream of supplies. Rentals will firm up in several areas by the close of 2022, owing to a rise in occupancy levels.
In Quarter 2 of 2022, industrial and warehouse demand was 4.5 million square feet, a 1.4 percent decrease year-on-year. Delhi-NCR had the largest proportion, accounting for 28%, followed by Chennai, which had a 21% share. Institutional investments in real estate in India were $1.5 billion in Q2 2022, representing an 18.8 percent decrease from Q2 2021. Greenfield investments in the office, industrial, and logistics sectors are expected in the coming quarters.
To combat the high inflation rate, the RBI’s attitude has shifted from accommodating to neutral. The high inflation rate has resulted in a 10%-12% increase in building costs, affecting developers’ expected cashflows and project completions.
Gross absorption was 14.7 million square feet in Q2 2022, a triple jump from Q2 2021. During the second quarter of 2022, Hyderabad, Delhi-NCR, and Bengaluru contributed over 64% of total leasing. The supply pipeline is expected to match market pre-commitments. But, some supply delay is also anticipated as developers battle with increased costs.
Vacancy levels fell by a solid 100 basis points to 17% in Q2 2022, owing to a recovery in demand in all sectors. Rentals get projected to firm up in several areas by the close of 2022, owing to an increase in occupancy levels. Large spaces are still being leased by IT and flex tenants, and demand from consultancy and BFSI organizations has increased.
3PL was the most popular demand category in the industrial industry, accounting for 60% of total demand, followed by automobiles (13%). Large agreements (greater than 100,000 square feet) led leasing, accounting for 75% of overall renting in H1 2022. With limited supply and strong demand, vacancy rates get forecasted to stay rangebound.
Colliers stated that office properties are still the favored investment for capital investors, contributing 42% of investment inflows in Q2 2022. When compared to the same period last year, investments in alternative assets increased fourfold in Q2 2022. Domestic investors have returned to the market, accounting for 44% of the market in Q2 2022, up from 10% in Q2 2021.
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