Opportunities in Real Estate ‑ 2018

Opportunities in traditional real estate segment will remain, however, newer segments will witness increased interests and investments on account of huge untapped demand.

• Maturing real estate market in India with changing demand composition and structure is accentuating the need for an overhaul in the operations of the various real estate verticals.
• Announcement of policy changes and new regulations like implementation of The Real Estate Regulation Act (RERA), The Goods and Services Act, Affordable Housing Policy as well as Grant of Infrastructure status to Affordable Housing and Logistics Sector have been the key drivers.
• Investment instruments like listing of REITs in Office, Hospitality & Logistics sector will also bring about a fundamental change in the structure, ownership of assets as well as development of new asset classes.
• In the residential sector, there is a demand-supply slowdown post demonetisation and RERA implementation. Hence, there is a heightened need to rework the offerings with differentiated products targeted to suit specific customer profiles.

Major opportunity for office space development on account of higher returns, lower risk and easier exit or monetisation avenues in the segment.

• Investment in the office segment is witnessing increased interests particularly with the allowance of REIT listings. Major foreign fund houses & realty players are tying up with developers of REITable stocks to set up REITs in the sector.
• Office sector provides stable cash flows and better returns to investors at relatively lower risk than residential assets. The sector also provides avenues for monetisation without sale like retiring investors from the project through loan rental discounting, easy exit or liquidation of investment through strata sale, discounting of the lease rentals or sale of the project.

142 million sqft of REIT eligible stock in Bangalore, Chennai & Hyderabad; additional 30 million sqft is currently under-construction

OPPORTUNITY IN COMMERCIAL SEGMENT
Segment	REIT Compliant Developments
Target Segment	Value of assets not less than INR 500 Cr.  Not less than 51% of value of the assets shall be rent generating.
	Bangalore	Chennai	Hyderabad
Current Market Scenario	86.2 million sqft (52%) of office stock is eligible for REIT listing.	27.2 million sqft (41%) of office stock is eligible for REIT listing.	28.4 million sqft (50%) of office stock is eligible for REIT listing.
Why Opportunity?	REITs can be floated even for a single asset project.  Five smaller developers can pool their revenue earning Grade A office developments for REIT listing.  REITs can be subscribed by foreign investors and raise debt capital by issuing debt securities.
Key Locations	Outer Ring Road, Whitefield & Bangalore North with high component of REIT eligible stock	OMR	HITECH City, Gachibowli

High demand for coworking spaces from start-ups; 8.3 million sqft of additional requirement by 2022

OPPORTUNITY IN COMMERCIAL SEGMENT
Segment	Coworking
Target Segment	Start-ups & MSMEs with less than 50 employees, uncertain cash flow, growth and scale of operations  Jobs with flexible work options & timings  Transitional office requirements or where seats remains vacant due to stationing of employees at site locations.
	Bangalore	Chennai	Hyderabad
Current Market Scenario	1.4 million sqft of coworking space	0.2 million sqft of coworking space	0.3 million sqft of coworking space
	Lower vacancy levels in office developments, high cost of leasing & lock in periods.  Lesser availability of 1-10 seater workspaces in Grade A developments
Why Opportunity?	5.6 million sqft of additional coworking requirement by 2022	0.6 million sqft of additional coworking requirement by 2022	2.1 million sqft of additional coworking requirement by 2022
	Areas well connected & proximate to business districts
Key Locations	CBD (MG Road, Residency Road), SBD (Koramangala, Inner Ring Road, Old Airport Road, Indiranagar, Old Madras Road), Outer Ring Road & Whitefield.	OMR, Guindy, Nugambakkam	Hitech City, Gachibowli, Jubilee Hills, Kukatpally, Kondapur

16,300 additional hotel room requirement in Bangalore, Chennai & Hyderabad by 2022. High demand for warehousing space from manufacturing, retail and e-commerce - 46.9 million sqft requirement by 2022.

• High activity in office segment has resulted in high hotel occupancy levels across the major southern cities. Average room rates, however, has remained unchanged.
• Hospitality and logistics sectors are likely to witness major investments as REITs can be floated. Grant of Infrastructure Status to Logistics Sector, strong manufacturing base and huge consumption market with high demand from retail and e-commerce as well as comparatively lower warehousing stock is likely to accentuate opportunity for development in the logistics sector.

OPPORTUNITY IN COMMERCIAL SEGMENT
Segment	Hospitality
	Bangalore	Chennai	Hyderabad
Target Segment	Business Travelers from IT/ITES sector	Business Travelers & MICE	Business Travelers from IT/ITES sector, MICE & Weddings
Current Market Scenario	12,560 operational rooms.  65% Average Occupancy Rate  1 Job Attributes to 1.7 room nights.	8,732 operational rooms.  63% Average Occupancy Rate  1 Job Attributes to 1.0 room nights.	6,013 operational rooms.  64% Average Occupancy Rate  1 Job Attributes to 1.3 room nights.
Why Opportunity?	8,150 additional hotel room requirement by 2022  3,000 rooms under-construction and will meet only 37% of the addressable market.	4,516 additional hotel room requirement by 2022  600 rooms under-construction and will meet only 14% of the addressable market.	3,672 additional hotel room requirement by 2022  900 rooms under-construction and will meet only 24% of the addressable market.
Key Locations	In proximity to the business districts like Whitefield, Outer Ring Road, Central and North Bangalore.	OMR, Mount Road, Egmore	In proximity to the business districts like HITECH City, Gachibowli & Banjara Hills
Segment	Logistics & Warehousing
Target Segment	Industrial & Retail sectors are the key drivers
	Bangalore	Chennai	Hyderabad
Current Market Scenario	17.7 million sqft of warehousing space.	10.9 million sqft of warehousing stock	9.2 million sqft of warehousing stock
Why Opportunity?	11.6 million sqft of additional warehousing requirement by 2022  Can be developed on Agricultural & Green Land.	18.6 million sqft additional requirement of by 2022.  Manufacturing Capital of India - Investments under Make In India Initiatives will propel industrial warehousing demand.  Chennai & Ennore Port will facilitate ICD & CFS warehousing.	16.7 million sqft additional requirement of by 2022.  Increased demand for warehousing in the e-commerce and retail space on being equidistant from the consumption hubs of Bangalore & Chennai.
Key Locations	Nelamangala-Dabaspet, NH 648 (near Chikka Thirupati) & NH 75 (Hoskote – Narasapura belt)	Walajabad, Mappedu, Sunguvarchatram, Mannur on the Sriperumbudur-Oragadam-Maraimalai Nagar & Periyapalayam-Gummidipoondi clusters	Medchal-Dandupally & Shamshabad, Kothur – Turkapally cluster

106,500 units of affordable housing units required during 2018-2022 in Bangalore, Chennai & Hyderabad.

• In the residential segment, shortage of affordable units and incentives for development under Pradhan Mantri Awaas Yojna (PMAY) schemes has accentuated opportunities for development in affordable housing segment. Affordable Housing is mainly catered by Grade B and C developers. Only 1 BHK units in projects of Grade A developers falls in < INR 0.25Cr segment.

OPPORTUNITY IN RESIDENTIAL SEGMENT
Segment	Affordable Housing
Target Segment	Households in the income bracket of INR 3 – 6 lakhs per annum.  Constitutes 11%-15% of the urban households.
	Bangalore	Chennai	Hyderabad
Current Market Scenario	Average annual demand of 9,000 units  Only 15% of the addressable market is met.	Average annual demand of 3,100 units  Only 12% of the addressable market is met.	Average annual demand of 4,400 units  Only 4% of the addressable market is met.
Why Opportunity?	59,000 units additional requirement by 2022.	19,500 units additional requirement by 2022.	28,000 units additional requirement by 2022.
	Developer can avail benefits under PMAY’s Affordable Housing in Partnership.
Key Locations	Bangalore North, Old Madras Road (Towards Hoskote), Tumkur Road, Mysore Road and Anekal – Jigani	OMR, Avadi, Oragadam, GST Road	Miyapur, Shadnagar, Maheshwaram, Pocharam

Increasing demand for customized and differentiated products is creating opportunity for developments in niche real estate segments. Total of 24,400 student housing beds annually required during 2018-2022.

• Opportunities are emerging in newer residential products like student housing on account of increased migration for education. High yield rates of 8%-12% per annum is also attracting institutional investments.

Total of 52,500 micro-units annually required in Bangalore, Chennai & Hyderabad during 2018-2022.

• Opportunities are also emerging in micro-units due to increased migration for employment, solo dwellers and double income households with no kids.

Way Forward:

• Office sector will remain upbeat as companies prefer Bangalore for further expansions & consolidations while in Chennai an increase in the share of Research & Development and Manufacturing sector in the total absorption is likely as the investments under Make In India initiative unfolds. Occupier interest is likely to increase further in Hyderabad with major global players setting-up captive offices in the city as well as due to lower rentals compared to Bangalore and Chennai and investment favourable policies of the State Government.
• Moreover, introduction of REITs in office, logistics & hospitality sector are likely to result in more investments in these developments.
  • In the office segment, more foreign fund houses, investors and realty players will enter as REITs can be subscribed by foreign investors. Coworking spaces - flexible workplaces at lower cost will gain increased acceptance with high demand from start-ups.
  • High activity in office segment is likely to persist translating to higher demand for hotel rooms. Under-construction supply is low and a situation of marginal crunch is likely in the near future.
  • Major investments likely in industrial/logistics parks operated by real estate developers.
• Opportunities in the traditional residential segment will remain, however, newer segments are likely to witness increased interests and investments on account of huge untapped demand.
  • Affordable Housing will be developed as part of larger projects.
  • Student Housing segment will gradually evolve to a more rent yielding asset category in commercial segment.
  • Reducing affordability of buyers in the income segment of INR 6-10 lakhs per annum due to high price points of properties is likely to accentuate demand for micro-units. Micro-units henceforth will be developed as part of larger development with 10%-15% of units in the category.