Key Trends That Will Drive Commercial Real Estate In 2022

The office of the future needs to offer amenities, wellness features and technological and cultural integration along with a sustainability blueprint

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For many large organisations the return to office is becoming an albatross around their neck. Real estate managers are finding it difficult to get employees back to the office and hence need to rethink what 'the office' means to most people. The office is not just the physical manifestation of space but rather a tool to invoke strong positive sentiment of belongingness, camaraderie, and career advancement. The office of the future needs to offer amenities, wellness features and technological and cultural integration along with a sustainability blueprint.

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Increasingly, occupiers are seeing merit in shorter-term leases that lend flexibility and agility and as a result flex as a solution has taken off in most markets. The answer to whether flex office is a more cost-effective solution or not depends on which side of the fence you sit on. Nonetheless, this asset class is growing steadily, and the last two quarters has seen large signups by flex players across all metros with many of them entering tier II and III markets. Colliers Research predicts that by 2023, total flex stock in both metro and non-metro locations will touch 60 million sq. ft, assuming the current trajectory continues with no major obstructions.

Landlords too are responding favorably as they recognize the need for providing not just building amenities but technologically advanced systems that enable better air quality, enhanced natural light and ergonomically advanced circulation infrastructure. Quite visibly so, key stakeholders of the commercial real estate ecosystem are gearing up to create workspaces that elevate the employee experience of a safer and enriching working environment.

While the above acts as a qualitative commentary on the commercial real estate market, we are also witnessing a strong uptake of space from organizations across the technology, outsourcing and BFSI sectors. With an increase in leasing volume and gross absorption across key markets, we hope that the pandemic lows are behind us and that we are marching into firm recovery in the second half of 2022.

Any pandemic induced softening of rent is now a thing of the past, with most markets seeing rental growth of 10-15 per cent, on average. Furthermore, with quality supply being high on demand and in view of the substantial leasing activity witnessed over the last three quarters, we are now staring at the market pivoting to being landlord favorable.

Another dominant theme that has emerged is the rising construction cost led by the higher cost of raw materials and inflation increasing labour cost. The cost of cement and steel has gone up by more than 20 per cent in the past year. The rise in input cost, coupled with robust demand is likely to exert further pressure on rents. While most developers would like to take advantage of the favorable conditions, very few have the financial muscle to speed up under-construction projects to cash in on current momentum. Institutional investors are known to prefer established developers and high-quality assets, further polarizing the market in favour of larger developers.

While India has limited availability of investible Grade A completed stock in key markets, there is a huge opportunity in the refurbishment of aging office buildings. Colliers Research report released in partnership with GRI Club, suggests that the top six cities alone offer refurb potential of up to 100 million sq. ft of office space. Along with the physical upgrade, this also presents an opportunity to align with ESG and sustainability standards, making the refurbished asset more attractive for corporate occupiers.

Overall, the commercial real estate sector is poised for a massive revival toward sustainability and workplace transformation.