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Industrial & warehousing demand remains healthy with about 13 mn sq ft of leasing in H1 2024 – Colliers

Jul 26, 2024 by Mansi 0 Comments #Industrial, #Vijay Ganesh, #Vimal Nadar, #warehousing

New Delhi, 26 July 2024: With about 13 million sq ft of leasing activity in H1 2024 and 17% YoY growth, industrial & warehousing demand across the top five cities remained healthy. Chennai and Delhi NCR led the demand, cumulatively accounting for about half of the overall leasing in H1 2024. Third Party Logistics (3PL) players continued to be the top occupier of warehousing space, contributing to about 36% share in overall demand during the first half of the year. Interestingly, demand in Chennai almost doubled in H1 2024, compared to the same period last year and was largely driven by warehousing requirements of 3PL players. At a micro market level, warehousing space uptake was more than 1.5 million sq ft each in Bhiwandi (Mumbai), Chakan-Talegaon (Pune) and Oragadam (Chennai).

Trends in Grade A Gross absorption (mn sq ft)

City Q2 2023 Q2 2024 YoY change H1 2023 H1 2024 YoY change
Bengaluru 0.7 1.2 71% 1.4 1.7 21%
Chennai 0.7 1.3 86% 1.7 3.2 88%
Delhi NCR 0.7 1.8 157% 2.8 3.2 14%
Mumbai 0.9 0.6 -33% 2.7 2.5 -7%
Pune 1.0 1.0 0% 2.4 2.3 -4%
TOTAL 4.0 5.9 48% 11.0 12.9 17%

“On a quarterly basis, Q2 2024 saw about 6 million sq ft of industrial & warehousing demand across the top five cities, a 48% rise YoY. With 1.8 million sq ft of leasing and 30% share, quarterly demand was significantly driven by Delhi NCR. The demand in the region was led by large uptake of industrial and warehousing space in Farukhnagar and Sonipat micro markets. Taking cognizance of healthy demand across major cities and supportive government policies, developers have been infusing high quality warehousing facilities replete with technologically advanced features. With significant completions in first half of the year, 2024 is likely to witness Grade A supply infusion to the tune of 20-25 million sq ft.,” says Vijay Ganesh, Managing Director, Industrial & Logistics Services, Colliers India.

3PL demand remains steady in H1 2024, leasing by other segments on the rise

While 3PL players continued to dominate the demand with about 36% share, space uptake by players from engineering, FMCG and electronics segments was significant with 12-16% share each. Interestingly, both engineering and electronics segments witnessed over 1.7X times leasing activity in H1 2024, compared to the corresponding six-month period of 2023. Going ahead, driven by conducive industry-specific policies and an enabling regulatory framework, diverse segments are likely to propel the industrial and warehousing space demand in India.

“With strong macroeconomic indicators, India’s industrial and warehousing market continues to grow, and the momentum is likely to continue in the second half of the year. Upward trend in indicators such as Manufacturing PMI and IIP reflects healthy industrial activity which is likely to spur demand for industrial and warehousing spaces. Interestingly, the manufacturing PMI has been in expansionary zone since July 2021 and remained close to 60 in the last few months. Furthermore, recent budgetary announcements will improve logistics efficiencies, catalyze demand and attract investments in the industrial and warehousing sector. Additionally, increasing platform level investments will lead to influx of superior quality industrial and warehousing space in the next few years.” says Vimal Nadar, Senior Director & Head of Research, Colliers India.

With supply infusion exceeding the demand for Grade A warehousing spaces, overall India vacancy levels increased by 210 basis points (bps) on an annual basis and stood at 12.2% at the end of H1 2024. Developer anticipation of heightened demand in upcoming quarters, have resulted in fresh supply of 14.4 million sq ft in H1 2024, a 35% YoY rise. With about 5.7 million sq ft of new industrial and warehousing developments, Delhi NCR accounted for about 40% share in overall completions in first half of the year. Notably, Q2 2024 witnessed about 7.5 million sq ft of completions in top five cities of the country, a 53% YoY rise. Q2 2024 also marked the highest quarterly supply infusion in the last 2 years. Amidst healthy demand and high-quality supply infusion, rentals in key micro markets saw an appreciable uptick.

Trends in Grade A Supply (mn sq ft)

City Q2 2023 Q2 2024 YoY change H1 2023 H1 2024 YoY Change
Bengaluru 0.6 0.6 0% 1.1 2.0 82%
Chennai 0.7 1.4 100% 1.9 2.7 42%
Delhi NCR 2.6 3.4 31% 3.7 5.7 54%
Mumbai 0.4 0.5 25% 1.7 1.5 -12%
Pune 0.6 1.6 167% 2.3 2.5 9%
TOTAL 4.9 7.5 53% 10.7 14.4 35%

Large sized deals account for 35% of the total leasing

During H1 2024, large deals (>200,000 sq ft) accounted for about 35% of the demand. Although a vast majority of these larger deals came from 3PL players, electronics and FMCG occupiers too had large warehousing space requirements. On a city level, Chennai followed by Delhi NCR dominated the chunk of large-sized deals.

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SEBI Advocates Fractional Ownership Platform Regularization: INR 4,500 Billion Market Float Expected by 2026

Apr 30, 2024 by Sujata 0 Comments #Badal Yagnik, #SEBI, #SM-REITs, #Vimal Nadar

Gurugram, 30 April 2024: With Securities and Exchange Board of India (SEBI) formulating detailed guidelines for Small and Medium REITs (SM-REITs), a large number of erstwhile unregistered Fractional Ownership Platforms (FOPs) for real estate assets are expected to get listed as SM REITs. This will effectively have the potential to regularize underlying real estate assets to the tune of over INR 40 billion in the near to midterm. With an effective regulatory framework in place, the liquidity of assets under fractional ownership is likely to get enhanced and can command significant traction in equity markets.

It is worthwhile to iterate that fractional ownership of real estate assets can be broadly in form of two modes – either through direct ownership by developers (Strata sale model in case of commercial realty and web-based Fractional Ownership Platforms) or through the stock markets (REITs and SM REITs). While direct ownership enables developers to tap multiple asset buyers at a larger level, FOPs and SM REITs facilitates the eventual ownership by small scale investors at the retail level. Interestingly, even though residential, warehousing, agro-farms and retail assets come under the anvil of various web-based platforms, the current FOP universe is dominated by commercial office spaces.

The recent SEBI guidelines will be beneficial in regulating the fractional ownership market and increase retail participation. FOPs will ultimately find it prudent to list as SM REITs and gain access to granular level of funding. From an asset owner perspective, an eventual listing will lead to increase in fair value of assets, democratisation of ownership and reduction in transaction costs during exit.

“SM REITs will not only foster retail investors’ interest in the real estate sector but will ensure investment portfolio diversification in a regulated environment. Aspects like reduction in minimum investment amount, mandatory manager holding period, and 95% presence of income generating assets will make SM REITs more endearing to the informed investor. Interestingly, the number of unitholders for the three office REITs in India have shown an annual growth of 60-80% since listing. On similar lines, SM REITs have a potential to witness an increase in ownership base by up to 20 times in the next 4-5 years. Altogether, Indian realty sector will witness fractional ownership being established as a promising alternative investment avenue in the coming years.” said Badal Yagnik, Chief Executive Officer, Colliers India.

Fractional ownership in CRE: Strata sale Grade A office stock to cross 260 million sq ft by 2026, translating into a valuation of around INR 4,500 billion

Strata sale form of fractional ownership is mostly prevalent in office buildings. As of March 2024, office market in top six cities of the country hold over 200 million sq. ft of Grade A strata sale stock, constituting 28% of total Grade A office stock. Mumbai followed by Delhi NCR are the leading cities in terms of quantum and strata penetration. 40-50% of their respective overall office stock is strata sold.

City-wise strata sold stock and penetration as of March 2024

City Strata Sold Stock (in million sq ft) Strata Penetration (%)
Mumbai 60.3 49%
Delhi NCR 55.6 41%
Bengaluru 40.3 19%
Hyderabad 22.4 21%
Chennai 12.9 16%
Pune 10.6 15%
Pan India 202.1 28%

Strata penetration refers to strata sold stock as % of overall Grade A office stock of respective city Of the ~200 million sq ft of Grade A properties under the Strata sale model, it is estimated that only 10-20% office assets are currently being offered by FOPs that are accessible to the retail investor. A vast majority of commercial asset developers are yet to fully tap the potential investment coming in from small scale retail investor. Colliers predicts that strata stock in top six cities in India will swell to 260-270 million sq ft in next two years, with an estimated market value of around INR 4,500 billion. As SM REITs will gain more popularity, the share of commercial assets accessible to the retail investor will also increase in the future. Fractional ownership of commercial real estate is set for a boost and the SEBI’s veil is likely to accentuate the transition of existing FOPs, especially ones within the office segment into SM REITs in the future.

Fractional ownership activity varies across cities, to pick up significant pace albeit by varying magnitudes

Interestingly, in Delhi NCR, strata sale is the most popular form of fractional ownership of office assets wherein developers offer office floors or even entire buildings to multiple owners. With about 55 million sq ft of office strata sold stock, the region accounts for the second highest share across the top six cities. However, web-based FOP activity is quite low in the region and very few office buildings have been put up for retail investment by major FOP operators. However, with a regulatory framework in place, the region holds huge potential for offering fractional ownership of office assets through web-based FOPs/SM REIT and attract retail investments in the next few years.

City-wise Fractional ownership activity (as of March 2024)

City/Fractional ownership channel Web-based platform activity* Strata sale activity REIT activity
Mumbai High High Medium
Bengaluru High Medium High
Delhi NCR Low High High
Hyderabad Medium Medium Medium
Chennai Medium Low Low
Pune Low Low Medium

“Within the fractional ownership ecosystem, commercial real estate segment holds significant growth potential.  Grade A strata sale stock is likely to rise from the current levels of around 200 million sq ft to over 260 million sq ft by 2026. Correspondingly, the market value of strata sale Grade A commercial developments is poised to reach ~INR 4,000 – 4,500 billion in next three years from the existing ~ INR 2,500 – 3,000 billion level. Furthermore, higher quantum of commercial office assets is likely to be listed as SM REITs to tap the full market potential while enhancing tradability of erstwhile closely held assets. This has the potential to be a win-win situation for leading commercial developers and retail investors targeting comparatively higher, stable and assured real estate returns” said Vimal Nadar, Senior Director & Head of Research, Colliers India.

Regulated fractional ownership of real estate to expand beyond commercial real estate

A well-regulated market of fractional ownership will attract a larger number of investors across various asset classes. SM REITs will attract a larger number of investors for co-ownership of prime commercial offices, thus bringing in more funds to manage and upgrade office assets as per international standards. In the residential segment, post covid-19, there is an increased investor preference of owning villas and luxury apartments as second homes in the popular tourist destinations. In the coming years, premium residential properties in the major offbeat destinations like Alibaug, Lonavala, Goa, Kodagu, Rishikesh and Shimla, is likely to see rising demand. Fractional ownership market is also likely to diversify in other alternative asset classes like industrial & warehousing, data centres, retail, student housing and healthcare in the years to come.

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Industrial & warehousing supply in Q1 2024 inched towards 7 million square feet

Apr 18, 2024 by Sujata 0 Comments #Industrial, #Vijay Ganesh, #Vimal Nadar, #warehousing

Gurgaon, 18 April 2024:  Amidst steady leasing, new supply inched towards 7 million sq ft during Q1 2024, the highest in last two years. Around 33% of the new Grade A developments in the first quarter was concentrated in Delhi NCR. Industrial and warehousing leasing activity across the top five cities remained buoyant during Q1 2024 at 7 million sq ft. Mumbai and Chennai led the demand with about 55% share. Interestingly, leasing in Chennai, especially remained robust, with industrial & warehousing space take-up in Q1 2024 almost twice the leasing activity in corresponding period of last year. Across the top five cities, Bhiwandi in Mumbai with 1.7 million sq ft of Grade A demand, was the most active market for Q1 2024. Bhiwandi was followed by Oragadam in Chennai, which surpassed leasing activity of Chakan Talegoan in Pune for the first time in a while.

Third-party logistics players (3PL) continued to be the top occupiers of industrial and warehousing space, contributing to over 40% in the total warehousing demand. 3PL space uptake was driven by healthy activity in Chennai particularly. The city accounted for about 43% of the overall 3PL activity in the top five cities. Interestingly, at the Pan-India level, retail players accounted for 16% of the demand during the quarter, followed by engineering and automobile players with 12% share each.

Trends in Grade A Gross absorption (million sq ft)

City Q1 2024 Q1 2023 Q4 2023 YoY change QoQ change
Chennai 1.9 1 1.6 90% 19%
Mumbai 1.9 1.8 1.5 6% 27%
Delhi NCR 1.4 2.1 1.4 -33% 0%
Pune 1.3 1.4 2.3 -7% -43%
Bengaluru 0.5 0.7 0.9 -29% -44%
TOTAL 7 7 7.7 0% -9%

Trends in Grade A Supply (million sq ft)

City Q1 2023 Q4 2023 Q1 2024 YoY change QoQ change
Bengaluru 0.5 1.1 1.4 180% 27%
Chennai 1.2 0.9 1.3 8% 44%
Delhi NCR 1.1 2.0 2.3 109% 15%
Mumbai 1.3 0.2 1.0 -23% 400%
Pune 1.7 2.2 0.9 -47% -59%
TOTAL 5.8 6.4 6.9 19% 8%

“While 3PL players continued to drive industrial & warehousing leasing activity, demand from Retail, Engineering and Automobile players too accounted for a significant share in Q1 2024. It is noteworthy to see that the cumulative share of these three sectors have risen from 26% in Q1 2023 to 40% in Q1 2024. This signifies changing consumption patterns and hints at opportunities emerging in the sector from the steady demand diversification.” says Vijay Ganesh, Managing Director, Industrial & Logistics Services, Colliers India.

Both retail and E-commerce segment witness over 2X surge in leasing

E-commerce segment has seen robust growth post Covid-19 and witnessed 2.3X times leasing during Q1 2024 compared to the same period in 2023. With increased focus on digital infrastructure and changing consumption patterns, E-commerce segment is further likely to warm up and create more demand for warehouses. Moreover, the rise of Q-commerce players is also likely to catalyze demand for bigger hub warehouses.

Warehousing space uptake by retail players also witnessed heightened traction in Q1 2024 and witnessed more than twice the demand a year ago. The expansionary activity is being driven by strong retail activity across cities, especially in large department stores. Favorable consumption pattern has the potential to translate into healthy demand for warehousing space in the upcoming quarters.

Large sized deals account for over 50% of the industrial & warehousing space demand

During Q1 2024, large deals (>200,000 sq ft) accounted for 51% of the demand, a significant rise from about 40% share during 2023. Amongst these larger deals, 3PL companies continued to account for the bulk of share. However, the rise in share of large deals was driven by large space uptake, particularly by retail and E-commerce players during the quarter. Chennai followed by Mumbai dominated the proportion of large-sized deals across the top five cities.

“While the average quarterly industrial and warehousing space demand in the last two years has been at around 6 mn sq ft, average incremental supply has been comparatively lower. With continued healthy leasing activity in last few quarters, developer confidence seems to have significantly improved. With a Grade A supply pipeline of about 23-25 mn sq ft for the year 2024, supply is likely to closely follow demand trend across the top five cities of the country. Overall, an upbeat start to the year holds potential to translate into a healthy performance by the industrial & warehousing sector in 2024.” says Vimal Nadar, Senior Director & Head of Research, Colliers India.

top 5 deals for Q1 2024-

City Quarter of Transaction Year Property Name Tenant Industry Area (Sq ft) Cluster
Pune Q1 2024 Ascendas Park MLL 3PL 500,000 Chakan Talegaon
Chennai Q1 2024 Indospace III – Ullavur DHL 3PL 490,324 Oragadam
Mumbai Q1 2024 Antariksh Green DMart Retail 400,000 Bhiwandi
Chennai Q1 2024 ESR Foxconn Electronics 320,044 Oragadam
Bengaluru Q1 2024 Sumadhura Logistics Park Zomato E-commerce 300,000 Hoskote Narsapura

Source: Colliers

Note: Data pertains to Grade A buildings for top five cities- Bengaluru, Chennai, Delhi NCR, Mumbai and Pune

Vacancy levels largely remain rangebound amidst rising supply and healthy demand

Supply infusion during the quarter was almost in line with the leasing activity, indicating improved developer confidence for the industrial and warehousing sector. At 11% by the end of first quarter, vacancy levels however increased by 120 bps as compared to Q4 of last year on account of churn and exits in the industrial and warehousing space. Amidst healthy demand and supply, rentals remained rangebound and rose by about 8% in select micro markets of Chennai and Pune.

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India property market sees high investors’ interest for alternative assets

Jan 29, 2022 by Gouri 0 Comments #Capital Markets and Investment Services, #Colliers India, #Piyush Gupta, #Vimal Nadar

India, January 28, 2022 – Investors are lapping up alternate assets in India, having invested USD500 million in such assets. This was a 26% rise from 2020 in alternate assets that includes data centres, senior living, student housing and coliving, as per leading diversified professional services and investment management firm Colliers (NASDAQ and TSX: CIGI). Robust technology consumption and data privacy laws will also pave way for further investments in the data centres space, with investors and developers exploring development options.

Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India commented, “The real estate business in India is witnessing significant transformation with a flight to high quality, technology, governance, and customer service. New business avenues such as data warehousing, shared spaces (be it office or residential), and Proptech is emerging with these changes. The confidence in residential is back with improved governance, timely deliveries, a positive sentiment supported by increased liquidity in the sector. Special situation and Credit Funds are aiding in resolving stressed situations”.

Apart from data centres, there is likely to be more focus on greenfield assets in the industrial sector in 2022 led by strong demand from E-commerce companies. The Industrial and warehousing segment saw investments at a five-year high at USD1.1 billion. Green financing through green bonds will also see greater acceptance this year in India as developers, asset owners and investors turn their focus to sustainable development. This trend has further been accelerated by the pandemic across geographies.

“India’s strong economic recovery coupled with a steady positive outlook underpins growth in the property market. This creates a strong setting for greater investor confidence in 2022 and beyond. The residential sector saw investments of USD900 million, the highest in four years. The affordable and mid segments accounted for 64% of the investments, signaling this is where the action is. The residential sector will continue to garner investments, both from private-equity players and Grade A developers looking for distressed properties in good locations. Overall, we expect deal-making to pick up post Q1 2022 as concerns regarding the Omicron variant starts subsiding,” added Vimal Nadar, Senior Director and Head, Research, Colliers India.

Overall, India is in an attractive position for foreign investments, with returns on property investment seen to be higher than developed countries. India is likely to emerge as the third-largest consumer economy by 2030 and this will spur growth across industries. While India’s strengths in digital and technology are robust, the country is also slowly becoming an attractive manufacturing destination.

Real Estate Sector on Repo Rates
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In 2021, Indian real estate has gained significant amount of the lost ground: Colliers

Dec 27, 2021 by Gouri 0 Comments #Asia, #Colliers, #Colliers India, #Indian real estate, #Ramesh Nair, #real estate, #Vimal Nadar

Occupier confidence has improved in the latter half of 2021 with occupiers closing large office deals, cementing the resilience of the sector and the underlying importance of offices. Occupiers remain focused on enhancing the well-being and experience of their employees as they plan to return to the office, chasing lucrative leases while realigning long-term plans. Developers are determined towards asset enhancement through requisite retrofit to remain relevant and retain tenants.

“The year 2021 was a watershed moment for India’s real estate sector. Even when the going was tough, the sector not only remained resilient but also emerged stronger than expected. India’s office sector is coming out of the woods, with demand back to pre-record levels. The year 2022 will even be better, even if marred by the new Covid-19 variant. We have now learned to live with uncertainty. Gross absorption in 2022 should be about 15-20% higher than this year as occupier confidence is back in the market. In terms of global capital chasing real estate, the office will continue to remain a dominant sector, but residential and industrial & warehousing will strengthen in 2022 aided by strong business fundamentals,” said Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers.

From the second half of 2021, technology players and flex space operators have been taking large spaces. Occupiers who had earlier focused on renewing deals are now looking at new leases. As employees return to the workplace, next-generation offices replete with health and wellness features are a top draw for occupiers.

Segments that beat market expectations

During the year, some segments surpassed market expectations, led by a tectonic shift in preferences and behaviour of occupiers, homebuyers and investors. We look at some of the segments that have emerged strongly in 2021.

Flex space growing, but not just in top cities

Flex workspaces are leasing spaces backed by occupiers’ back-to-work plans and pre-commitments. Flex spaces have come to the fore after a gap of a year, to occupy a significant share in leasing at 16-18% in 2021. Total flex stock in metro cities is likely to rise to about 40 million sq feet in 2021. Tier-II cities are witnessing increased growth of flex spaces. Flex spaces stock in tier II cities is estimated to have grown more than two-fold this year to 5.5 million sq feet.

Investments in residential make a comeback

The residential segment saw strong recovery gains led by government stimulus, market-led price discovery, new demand. Investment volumes in the residential sector made a comeback in 2021. In the first nine months of the year, investments in the residential sector stood at USD420 million, surpassing the volumes seen in the whole last year. Investors are seeking a buy-in in the asset class, especially in the near-completion stage. Investments are spurred by renewed residential demand, led by a higher inclination to own homes, low home loan rates and steady prices.

Industrial investments inch towards USD1 bn

The industrial segment is likely to see investments inching towards USD1 billion in 2021, led by large global investors buying ready and greenfield warehousing projects. Since last year, investors have been exploring industrial space. While data centres gained traction this year from developers and investors, this year also saw the maiden investments deal in the life sciences sector.

“Despite a devastating second wave, investments into the real estate sector have been unwavering, especially from global investors. Interestingly, investors are also betting on new-age sectors like life sciences and data centres. As per a recent Colliers survey, industrial and logistics assets will be the most sought-after real estate assets in the APAC region, with more than 20% of investors anticipating capital value gains of 10%-20% in value-add assets in 2022, supported by tailwinds and large-scale economic transformation. This shows the immense potential. Moreover, the centre’s new warehousing policy has the potential to transform the warehousing sector to make it more competitive. Overall, the sector’s resilience and growth will give way to more innovation next year, in accordance with the changing times we live in, says Vimal Nadar, Senior Director and Head of Research, Colliers India.

Overall, the real estate sector will see stakeholders pivoting to different models, resetting to the new way we work, live and entertain. Developers, investors and buyers will work towards bringing in sustainability and cutting carbon emissions. The market will also see gains from sectors such as Electric vehicles, solar panel manufacturing, etc in the coming years.