Demand for Indian commercial real estate on a high with fractional investments making way
The real estate sector in India is expected to reach a market size of US$ 1 trillion by 2030, up from US$ 200 billion in 2021, contributing to 13% of the country’s GDP by 2025. The residential, commercial, retail and hospitality sectors are also growing significantly, providing the much-needed impetus to India’s real estate.
High-net-worth individuals (HNIs) and ultra-high-net-worth individuals (UHNIs) have always looked at the Indian real estate market as a lucrative option for investments. Notably, in 2023-24, a whopping 61% of HNIs and UHNIs are looking to invest in India’s real estate sector, according to the annual Luxury Outlook Survey 2023 conducted by India Sotheby’s International Realty (ISIR). The report further states that around 75% of the HNIs and UHNIs expect real estate to do well over the next two to three years, with around 74% considering it an important asset to hedge against inflation.
Observantly, the sector has grown to be even more organised with policies such as the Real Estate (Regulation and Development) Act, 2016 (RERA) coming in and the launch of real estate investment trusts (REITs) in the commercial space, making the real estate sector an attractive investment option for HNIs and UHNIs. Today, several investments are taking place in Grade-A offices, mainly due to its strong capital appreciation and rental yield. And notably, commercial properties in the Indian market can offer an average rental yield of 8-11%.The report by ISIR further points out that 23% of HNIs are planning to invest in rent-yielding commercial real estate, thus making commercial properties a lucrative option for investments.
Commercial it is!
The commercial real estate market in India is expected to grow by a CAGR of 13.85% between 2023-2028, according to a report by Mordor Intelligence. The projected growth can be attributed to reforms in the commercial space aimed at encouraging foreign direct investments (FDI) and private equity (PE) participation. Foreign investments in commercial real estate stood at US$ 10.3 billion from 2017-21.
In the coming years too, commercial real estate is expected to be augmented by large-scale investments by institutional investors due to the transparency and competence it offers. Furthermore, the demand for office space is driven by sectors such as IT, manufacturing, BFSI, etc looking for office spaces. And, with demand for IT and other service sectors growing in India and millennials having disposable income to invest, the demand for commercial real estate has been growing exponentially