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Cold chain logistics expected to grow by over 20% CAGR by 2025: JLL

May 12, 2021 by Rekha Nair 0 Comments #Head – Industrial Services, #India, #JLL, #Yogesh Shevade

Mumbai: The national cold chain sector is expected to grow at over 20% CAGR by 2025, according to JLL, due to its transformation from conventional cold storage to modern storage space. The estimates are based on the sector’s performance over the past few months, where despite the post-Covid economic impediments, the organised cold chain segment has seen significant growth in country-wide footprint. According to JLL, there is an opportunity for organised cold storage / palettized cold storage in Tier-I cities like Mumbai, Delhi NCR, Bangalore Chennai, Pune, Kolkata, Hyderabad as well as Tier-II cities like Lucknow, Kanpur, Ranchi. Patna, Bhubaneswar, Goa, Aurangabad, Ahmedabad, Kochi, and Coimbatore. An additional 1.5 lakh to 2 lakh pallet capacity (frozen and chilled) may be added as part of temperature-controlled storage space in the next two to three years.

Cold chain refers to the transportation and warehousing of temperature-sensitive products from the point of origin to the point of consumption, which increases shelf life and prevents spoilage. About 60% of cold storage capacity is concentrated in the states of West Bengal, Uttar Pradesh, and Bihar, out of which storage of potatoes accounts for 85-90% of the capacity. Cold storage in India contributes 43.7% of the total revenue from the cold chain industry and only 36% have a capacity below 1,000 MT.

“Automation in the logistics sector will only become more pronounced in the coming years and we see innovation in the multimodal and cold supply chain as catalysts for new segments of demand. Both from the equity and lending community, the appetite for the yield in the industrial sector is likely to further drive the investor demand for cold chain facilities,” said Yogesh Shevade, Head – Industrial Services, JLL, India. “The rationale behind the expansion is primarily driven by capturing higher market share by organised cold chain operators, changing consumer behavior for quality products, and securing supply reliability in a pandemic like situation,” he added.

While production of perishables has increased consistently in the past five years, cold chain sector potential remains untapped due to the high share of single commodity storage and soaring investment for land and refrigerator units. Additionally, the lack of necessary enabling infrastructure, inadequate awareness for handling perishable goods, and lapses in service by storage and transportation providers leading to inferior quality goods, have impacted demand.

In current times, for transporting and storing temperature-sensitive products refrigerated storage has become an integral part of the supply chain. Proximity to population centres, population growth, changing consumer preferences and consumer spending are the primary drivers for cold chains.

Growth in organised retail: Organised retail and foodservice industries have emerged as new cold chain segments, majorly due to changing consumption patterns. Increasingly, consumers demand a large variety of fresh fruits and vegetables, dairy products, meat, and poultry products, and other temperature-sensitive commodities have led to rising in cold chain infrastructure.

Growth in the food processing industry: Since, the Indian food processing industry is critical, the government vigorously focusing on its development. This has resulted in boosting of cold chain infrastructure, which will, in turn, reduce wastage in the supply chain.

Pharmaceutical sector: Cold chain forms the storage backbone of the pharmaceutical industry, which is highly susceptible to temperature and time requirements. It is a known fact that India caters to over 50% of global demand for various vaccines, 40% of generic drugs demand in the USA, and 25% of all medicines in the UK, and the sector is expected to rapidly grow by 2025.

Government support: Initiatives including Scheme for Cold Chain & Value Addition Infrastructure, Pradhan Mantri Kisan Sampada Yojana (PMKSY) and Backward& Forward Linkages have encouraged more investments in the segment of the cold chain.

Increased profitability has encouraged new operators to enter the market. Global and domestic investors that are new to the cold chains but versed in supply chain asset investments are beginning to show interest in the sector. Rising demand from the market and the adoption of cost-cutting technological advancements have caused profit margins in the cold chains logistics industry to expand over the past five years.

Business World

Residential sales recover over 90% to pre-Covid levels in Q1, 2021: JLL

Mar 25, 2021 by Neel Achary 0 Comments #Chief Economist and Head Research & REIS, #Dr. Samantak Das, #JLL, #Residential Market Update

Mumbai, March 25, 2021: Residential sales in Q1 (Jan-March) 2021 recovered to more than 90% of the volumes witnessed in Q1 2020 (pre-Covid) across the top seven cities, according to JLL Q1 Residential Market Update – Q1 2021 released today. The cities including Chennai, Hyderabad, Kolkata, and Pune surpassed the sales volumes of Q1 2020. Overall sales increased by 17% on a sequential basis. Importantly, sales either improved or stayed at similar levels (in Q1 2021 when compared to Q4 2020) in majority of the residential markets under consideration. Mumbai has consistently been the largest contributor to sales in the last four quarters. In Q1 2021, Mumbai accounted for 23% of the sales, followed by Delhi NCR with a share of 21%.

However, Kolkata saw the maximum increase in sales activity in Q1 2021 in comparison to the fourth quarter of 2020. In Kolkata, the offtake of residential units in Q1 2021 was driven by South Suburbs (Joka, Kasba, Behala, Jadavpur, Tollygunje) and East Suburbs (EM Bypass, Rajarhat, Topsia) with a combined contribution of more than 70%.

Residential market reached more than 90% of pre-Covid sales

	Q1 2020 (in units)	Q1 2021 (in units)	Recovery Sales in Q1 2021 as a proportion of sales in Q1 2020
Bengaluru	4,186	2,382	57%
Chennai	2,453	3,200	130%
Delhi NCR	5,941	5,448	92%
Hyderabad	3,027	3,709	123%
Kolkata	1,259	1,320	105%
Mumbai	6,857	5,779	84%
Pune	3,728	3,745	100%
Total	27,451	25,583	93%

Mumbai includes Mumbai city, Mumbai suburbs, Thane city and Navi Mumbai

Source: Real Estate Intelligence Service (REIS), JLL Research

Chennai – sales was driven by Southern Suburbs (Perungudi, Pallavaram, Medavakkam, Navalur, Thalambur, Nanganallur) which accounted for nearly 60% of the total offtake during the quarter.

Hyderabad – the Western Suburbs (Gachibowli, Manikonda, Kukatpally) submarket accounted for more than 65% of the sales during the quarter.

Pune – North East (Viman Nagar, Kharadi, Wagholi) and North West (Hinjewadi, Wakad, Baner) accounted for 67% of the sales during the quarter.

Sales volume increased across most markets

	Q2 2020 (in units)	Q3 2020 (in units)	Q4 2020 (in units)	Q1 2021 (in units)	Growth (%) Q1 2021 over Q4 2020
Bengaluru	1,977	1,742	2,535	2,382	-6%
Chennai	460	1,570	2,500	3,200	28%
Delhi NCR	2,250	3,112	4,440	5,448	23%
Hyderabad	1,207	2,122	3,570	3,709	4%
Kolkata	481	390	438	1,320	201%
Mumbai	3,527	4,135	5,026	5,779	15%
Pune	851	1,344	3,323	3,745	13%
Total	10,753	14,415	21,832	25,583	17%

Mumbai includes Mumbai city, Mumbai suburbs, Thane city and Navi Mumbai

Source: Real Estate Intelligence Service (REIS), JLL Research

“The sustained growth in sales presents clear signs of demand and buyer confidence coming back to the market. This has been on the back of historically low home loan interest rates, stagnant residential prices, lucrative payment plans and freebies from developers and government incentives such as the reduction of stamp duty in states like Maharashtra and Karnataka (for affordable housing). The ease of lockdown restrictions and the commencement of the vaccination drive have further aided in bringing buyers back to the market,” said Dr. Samantak Das, Chief Economist and Head Research & REIS, JLL.

“In the fourth quarter of calendar year 2020, India’s economy returned to growth territory, recording a 0.4% rise in GDP. In tandem with the GDP growth, the pace of recovery in the residential market intensified with sales increasing by 51% when compared to the previous quarter. In Q1 2021, sales of residential units continued an upward trajectory. Sales, at the overall level, increased by 17% on a sequential basis,” he added

The Covid-19 pandemic tilted the scale further in favor of established developers. As the sector shows signs of recovery, prominent developers are expected to be at an advantage and capture a greater share of the market. Homebuyers have become even more cautious in their home purchase decisions. There is an increased preference for investing in projects by developers with an established track record. Only credible developers, who have execution capability as well as quality products, and conduct their business in a transparent manner will be able to operate in the post-covid era in a sustainable manner. Ultimately, this will lead to greater transparency and improved consumer sentiment in the market.

“The Government is committed to boost affordable housing. The recent Union Budget has extended the benefit of additional interest deduction on home loans for first-time homebuyers in the affordable segment. Further, there is a time extension to claim the tax holiday on profits from affordable housing projects until March 2022. The housing loan going below 7% for the first time in the last decade also triggered sales in all segments in the residential real estate. The buoyancy in the market manifested in the form of low mortgage rates and stable prices are expected to continue and attract fence-sitters and serious end users,” said Siva Krishnan, Managing Director, Residential Services (India), JLL

RBI is leading the way to recovery by holding policy rates at historically low levels to initiate a cycle of consumption led growth. As concerns related to jobs and a stable flow of income are alleviated, buyers are coming back to the market to make the most of this ‘great time to purchase a house’.

New Launches scale up, focus on affordable homes continues

	Q2 2020 (in units)	Q3 2020 (in units)	Q4 2020 (in units)	Q1 2021 (in units)	Growth (%) Q1 2021 over Q4 2020
Bengaluru	6,135	1,074	4,335	5,469	26%
Chennai	182	1,487	2,892	5,036	74%
Delhi NCR	Negligible	699	2,244	4,734	111%
Hyderabad	5,034	5,396	10,313	8,591	-17%
Kolkata	Negligible	Negligible	638	583	-9%
Mumbai	2,294	2,242	3,223	4,616	43%
Pune	1,135	1,756	3,140	4,924	57%
Total	14,780	12,654	26,785	33,953	27%

Mumbai includes Mumbai city, Mumbai suburbs, Thane city and Navi Mumbai

Source: Real Estate Intelligence Service (REIS), JLL Research

The first quarter of 2021 witnessed new launches of 33,953 residential units, a jump of 27% over the last quarter of 2020. Hyderabad continued to dominate new launches and accounted for more than a fourth of the overall launches during the quarter. Bengaluru, which formed more than 16% of the new launches followed. The markets of Delhi NCR and Chennai witnessed a substantial increase in launch activity during the quarter. New launches are still at 84% when compared to the pre-Covid levels of Q1 2020. Developers across the markets under review remain focused on the completion of under construction projects and clearing their existing inventory.

Development focus on mid and affordable segments continues in Q1 2021 with 69% of the new launches in the sub INR 10 million categories. In the coming quarters, the focus on these price segments is expected to continue with developers trying to reap the benefits of strong pent up demand in these segments. Most of the new launches in the markets of Bengaluru, Hyderabad, and Pune were in the sub INR 10 million category Bengaluru – 77%, Hyderabad – 76%, Pune – 100%.

Unsold inventory increases marginally

Q4 2020

(in units)

Q1 2021

(in units)

Growth (%) – Q4 2020 over Q3 2020

Aggregate (7 cities)

462,380

470,750

Top 7 cities include Delhi NCR, Mumbai, Bengaluru, Chennai, Hyderabad, Pune and Kolkata

Mumbai includes Mumbai city, Mumbai suburbs, Thane city and Navi Mumbai

Source: Real Estate Intelligence Service (REIS), JLL Research

As new launches outpaced sales, unsold inventory at various stages of construction across the seven markets under review increased marginally from 462,380 units to 470,750 units. Mumbai, Delhi NCR, and Bengaluru together account for 70% of the unsold stock. An assessment of years to sell (YTS) reveals that the expected time to liquidate this stock has increased from 4.2 years in Q4 2020 to 4.6 years in Q1 2021.

It’s a “buyer’s’ market with price continuing a downward trend

Residential prices in the majority of India’s residential markets have remained stagnant in the past few years. In Q1 2021, prices remained largely stagnant when compared to the previous quarter, across all the seven markets under review. This being said, it is important to point out that few developers in certain markets are providing moderate price discounts to boost sales. Moreover, developers are offering attractive freebies including payment schemes such as no EMIs for a year, no stamp duty and so on to attract homebuyers who pressed ‘pause’ in the last few months. This has led to a reduction in ‘effective prices. This rationalisation combined with reduced home loan rates has further improved affordability in the residential market.

As developers continue to focus on recovering the volumes lost amidst the pandemic and gaining a foothold in their respective markets, prices are expected to be largely range-bound across most of the markets in the short-term.

Sustained growth of the sector expected in 2021

Guided by the expected economic growth trajectory, the uncertainty around the stability of jobs and incomes is only expected to reduce in the coming quarters. This is likely to have a direct positive impact on the housing sector with enhanced buyer confidence.

News

Budget Expectations – Ramesh Nair, CEO & Country Head (India), JLL.

Jan 8, 2021 by Rekha Nair 0 Comments #CEO & Country Head (India), #JLL, #Ramesh Nair

The government made necessary and timely interventions through liquidity infusion, fiscal support and reform driven investments in the initial leg of relief measures. Further, the Central Bank and the Central government rolled out other critical measures including loan moratorium, relaxation of NPA classification norms, one-time restructuring of corporate and personal loans (including home loans), etc. These measures and concessions have definitely helped in enhancing consumer sentiment, thus boosting consumption, resulting in increased traction in the real estate sector. While we have seen a continuance of recovery in the fourth quarter which started in Q3 2020, the actual market transaction volumes continue to be lower compared to pre-Covid levels.

In this context, we believe that the following additional measures will aid in spurring consumption, investment; thus, resulting in a sustenance of a recovery led growth in the next few quarters.

Accord ‘Industry status’ to the real estate sector
Extension of benefit u/s 80EEA to avail additional INR 150,000 interest deduction on home loans to the following:
- Existing homebuyers who have already availed home loans
- First time homebuyers to include mid segment as well

Separate provision for deduction of ‘principal repayment’ on home loans
Restriction on setting off loss from house property against other heads of income at INR 2 lakh to be removed
Reduction in holding period of REITs for long-term capital gains
Allow 100% FDI in completed residential real estate projects through the automatic route
Allowing input tax credit on calculation of GST payable in real estate

Business World

Office absorption in Pune gains momentum; 1 million sq. ft. leased from July to Oct 2020: JLL

Nov 25, 2020 by Gouri Achary 0 Comments #Absorption, #Investments, #JLL, #Office absorption, #pune, #rental, #Sanjay Bajaj, #Vacancy

Pune’s office market is gradually picking up with approximately 1 million sq. ft. of gross office space being absorbed during July to October 2020. This is in comparison to a 1 million sq. ft. absorption in the first half of 2020 (January to June).

While absorption was sluggish in H1 2020 owing to the lockdown, the city witnessed large corporate occupiers renewing their existing office leases as a part of their long term corporate real estate strategies during July to October 2020. As a result, the first ten months of the year witnessed approximately 2 million sq. ft. of gross absorption. The leasing has been primarily led by BFSI & Fintech, GICs, Indian and Global Technology Services Firms, Product companies and Flex/coworking space Operators. Additionally, Pune is also getting recognised as a start-up and R&D hub.

“Most sectors continue to expand their footprint in the city owing to the diverse and quality talent base, large world-class campuses offering competitive rents and the city’s vibrant and cosmopolitan lifestyle. Due to these factors, Pune remains a favourite among occupiers, developers and investors,” said Sanjay Bajaj, Managing Director – Pune, JLL. “Pune is among the fastest-growing flex space in the country today,” he added.

Absorption trends 2020 (million sq. ft.)

Q1 2020	Q2 2020	Q3 2020	Oct 2020
0.36	0.64	0.46	0.64

Source: Real Estate Intelligence Services (REIS), 2020, JLL Research & JLL Pune Markets

Vacancy trends 2020 (%)

Q1 2020	Q2 2020	Q3 2020
5.5	4.4	4.7

Source: Real Estate Intelligence Services (REIS), 2020, JLL Research

Estimated new supply in 2021 (million sq. ft.)

Q1 2021	Q2 2021	Q3 2021	Q4 2021
0.45	3.2	1.52	1.58

Source: JLL Pune Markets

Average vacancy in the city during the last three quarters remained range bound and stands at 4.7% by end of Q3 2020. Approximately 7 million sq ft. of new supply is scheduled for completion by the end of 2021.

The rental plateau

The rentals are plateauing in Pune offering value-driven propositions and opportunities to occupiers. Moreover, the landlords across the city have are more flexible now and open to innovative deal structuring, including incurring capital expenditure towards fit-outs on behalf of occupiers. These factors are helping occupiers achieve a more cost-effective cash outflow.

New investments

The city has been attracting large institutional funds and developers. Approximately 47% of the city’s Grade A stock is directly or indirectly under the ambit of institutional funds or developers. These investments are spread across greenfield, brownfield, rent-yielding ready assets’ and an additional 25.0 million sq. ft. is projected to be added in the next 5 years.

Business World

Monetizing real estate assets can help corporate India retire long term debt of USD 341 billion: JLL

Nov 19, 2020 by Gouri Achary 0 Comments #corporate India, #Dr. Samantak Das, #JLL, #real estate, #real estate assets

Monetizing real estate assets can help corporate India retire long term debt of USD 341 billion according to JLL Research. However, banks have an overhang of non-performing loans for the last few years. RBI data on India’s economic-financial position in FY 2018-19 reveals that the value of land stood at USD 52 billion and building stood at USD 89 billion. This total of USD 141 billion is 41% of the outstanding long-term debt of USD 341 billion. One of the probable reasons for this situation is lower profits generated from the assets invested in.

An uncertain economic scenario has forced corporate finance heads to reimagine real estate assets as sources of funds to reduce debt. The aggregate financials of approximately 2.45 lakh non-government, non-financial companies indicate that debt accounts for less than 50% of their net worth.

The current pandemic has further worsened asset utilization and profitability. Though real estate assets are required for setting up business operations, they do not contribute directly to the products and services delivered. If these assets are monetized, it can help reduce substantial debt. Land values are recorded at historical prices in the balance sheet, while their market value could be substantially higher. Similarly, the sale value of the buildings would be higher than stated in the books of accounts. Funds generated through the sale of these assets could be high enough to cover the entire debt. The sale and leaseback of these assets will result in no impact on business operations.

Source: RBI database of Indian Economy latest data and JLL research

Speaking on the development, Dr. Samantak Das, Chief Economist and Head of Research & REIS India, JLL said, “With the fall in economic activity, COVID-19 has impacted asset utilization and profitability tremendously. In the current unprecedented circumstances, sale and lease-back of assets are likely to provide long term steady rental yields for funds with patient long term capital as monetization of these assets could reduce substantial debt, and funds generated through the sale of these assets could be high enough to cover the entire debt.”

One of the biggest challenges is the mindset of corporates, who feel that owning real estate is of utmost importance. In many cases, since land is allocated under various state industrial policies, the option of sale and leaseback is not considered. However, in today’s uncertain economic environment, corporate finance heads are likely to look at options using real estate as a source of liquidity. Investors may face challenges on account of ownership titles and valuation. Such deals could take longer time to close due to documentation and taxation issues.

The current pandemic has challenged our take on value, consistency, certainty and quality, which apply for investment decisions too. Investors will gain new lessons and thrive with the latest opportunities in the Indian real estate.

Business World

India’s hospitality industry witnesses decline of 52.8% in RevPAR during the first three quarters of 2020: JLL

Nov 11, 2020 by Gouri Achary 0 Comments #hospitality industry, #Hotels & Hospitality Group (India), #Jaideep Dang, #JLL

India’s hospitality industry has witnessed a decline of 52.8% in Revenue Per Available Room (RevPAR) during January to September (YTD Sept) 2020 over the same period last year due to the impact of Covid-19 pandemic, according to JLL’s Hotel Momentum India (HMI) Q3 2020, a quarterly hospitality sector monitor. Overall, in inventory volume, the brand signings declined by 19% in Q3 2020 over Q3 2019, however international operators signed a greater number of keys than domestic ones.

All key 11 markets in India reported a decrease in RevPAR Performance in Q3 2020 over the same period last year. Mumbai continues to be the RevPAR leader in absolute terms, despite the decline of RevPAR by 71.7% in Q3 2020 compared to Q3 2019 whereas Bengaluru saw the sharpest decline in RevPAR in Q3 2020, with 88.1% decline compared to the same period in the previous year.

According to the findings of HMI Q3 2020, international operators dominated signings over domestic operators with the ratio of 53:47 in terms of inventory volume. Demand in leisure destinations began seeing weekend occupancy spikes as the lockdown restrictions were further lifted in August.

Source: STR

Other cities such as Pune (86.2%), Kolkata (82.6%) and Goa (78.8%) also witnessed sharp declines in RevPAR.

“Investors are taking interest in exploring operational hotel opportunities both in business and in leisure locations. With the phased unlocking of the economy in the third quarter of 2020, we are witnessing gradual growth in demand particularly in leisure market with weekend occupancy spikes”, says Jaideep Dang, Managing Director, Hotels & Hospitality Group (India), JLL.

A total number of signings in Q3 of 2020 stood at 24 hotels comprising of 2,314 keys recording a decline of 19% compared to the same period last year. The Reserve Bank of India (RBI) has announced de-linking hotels from commercial real estate enabling hotels to seek capital loans from banks and ease out liquidity issues, especially for new hotel projects.

Business World

India’s flexible space market to cross 50 million sq. ft. by 2023: JLL

Nov 10, 2020 by Gouri Achary 0 Comments #Dr. Samantak Das, #JLL, #Ramesh Nair

JLL today launched a report titled JLL’s “Reimagine Flexspaces A 360⁰ view” which highlights that the current market penetration of flex spaces into India’s total office stock stands at 3.0%. The country is expected to witness deeper penetration, throughout 2021 and beyond, the flex space market is forecast to grow at a slower pace and more organically. Irrespective of several short-term disruptions and challenges, increased demand from large enterprises, will support the growth of the flex space market to more than 50 mn sq. ft. by 2023. It is anticipated that flexible space will grow by an average of around 15-20% per annum over the next three-to-four years, although this trajectory will not be linear.

Previously expected levels of new investment are unlikely to be seen, as operators look to solidify their existing operations and it is likely that certain operators will not be able to weather the storm.

“Flex space operators have changed the face of commercial real estate with their innovative offerings. This market is projected to grow at a steady pace throughout 2021 and beyond. Resultantly, the market penetration of flex spaces into total office space is likely to see a gradual increase from the current 3.0% to 4.2% by 2023. We expect this growth to continue, driven by demand, profitability and return-profile for investors, albeit at a slower pace resulting from the impact of COVID-19.” said Ramesh Nair, CEO & Country Head (India), JLL. “Technology is advancing at an exponential pace and will play a major role in the future of workplaces. In this era, operators that utilize technology to enable the creation of a safer and better work experience will have a competitive edge” he further added

As corporates return to the workplace, they are likely to further leverage flexible space to reduce capital expenditure and create cost savings, while allowing for split teams and de-densification requirements. Developments that initially drove the growth of the flex market, like the focus on utilizing workplaces to boost productivity and drive dynamic work cultures, enhance emphasis on employee health etc., will continue to influence the next phase in India.

“While the flex-space market more than tripled in the last 3 years, the momentum going ahead will be relatively slower. Players are likely to tread cautiously, and the overall market is expected to expand 1.5 times from the current size. At the same time, demand for flexible space is likely to remain resilient and we expect the size of the flex space market to cross 50 mn sq. ft. by 2023 led by increased demand from larger enterprises,” Dr Samantak Das, Chief Economist and Head of Research & REIS, JLL India.

At present, Bengaluru and Delhi NCR together account for more than 50% of the flex space stock in India, with Bengaluru housing around 10.6 mn sq. ft. of such spaces. Hyderabad with 4.5 mn sq. ft. and Mumbai with 4.3 mn sq. ft. of flex office stock follow. According to JLL, Hyderabad and Pune are currently among the fastest-growing markets in the country.

In the commercial real estate space, flex spaces have become synonymous with adaptability. As preferences evolve, a range of flexible space options have taken shape to suit changing business needs, including remote working. To respond to the current disruption, and to lay the groundwork to deal with what may be permanent changes for the industry, flex space operators have been agile and are recalibrating their business strategies. They are now laying a greater emphasis on profitability and evolving strategies to ensure stable occupancy levels in their flex space centres.

Large enterprises to drive demand

The densification trend that had emerged over the last decade will likely reverse with enterprises leaning on flexible office space to relax space density. Large enterprises might also look at splitting up their offices to reduce commute times and dependence on public transport. However, with expected economic uncertainty, companies will be hesitant to commit large capital to real estate.

In terms of strategy, leasing directly to a third-party flexible space operator is the most widely adopted model. A partnership model allows both landlords and operators to leverage each other’s strengths. There are several ways to implement a partnership, with revenue shares and management contracts being the most common. Under the revenue share option, both parties split the upside. In the case of a management contract, the operator gets a fixed payment, while the landlord assumes all the leasing risk and enjoys the upside. Despite the benefits of this approach, partnerships are relatively less common in India for now.

What the future holds

The entry of more than 300 flex space operators into the country helped commoditize the market. Prior to the pandemic, most of these operators were focused on attaining scale and capturing market share. However, the availability of capital, in the current scenario, will be a challenge. Players who have embarked on aggressive growth so far will find themselves strapped for capital. In such a scenario, the market is likely to witness consolidation activity driven by larger operators with financial wherewithal acquiring smaller ones.

Flexible workplaces will continue to be a major influence on the future direction of the Indian office market. There will be an even greater focus on providing customized office space solutions and demand for flexible space will not only return but increase, as occupiers embrace the core plus flex model more widely. Despite the massive disruption from the impact of COVID-19, the future of flexible workspaces will remain optimistic.

Business World

Indian real estate sector likely to register USD 4.8 bn institutional flow of funds in 2020: JLL

Nov 4, 2020 by Gouri Achary 0 Comments #Capital Markets Update | Q3 2020, #Dr. Samantak Das, #Indian real estate sector, #investors, #JLL, #Ramesh Nair, #real estate, #REIT

India’s real estate market attracted USD 235 mn in the capital in the third quarter of 2020 (Q3,2020), growing by 52% quarter-on-quarter (QOQ), according to JLL’s ‘Capital Markets Update | Q3 2020’ report released today. The India real estate sector is expected to draw USD 4.8 bn of capital in 2020, representing an 8% decline on 2019’s total transactional volume of USD 5.3 bn.

According to JLL, investors are most attracted to the country’s office sector, with interest remaining strong throughout the pandemic and the partial relaxation of the lockdown with USD 200 mn invested during Q3 2020. Concurrently, global investors actively sought asset portfolio opportunities, with two landmark portfolio transactions amounting to a total of USD 3.6 bn in investment value likely to be concluded in Q4 2020. In the primary markets, Mindspace Business Parks REIT- India’s second REIT issue of USD 600 mn was oversubscribed by 13 times in August 2020. The strong response to this REIT indicates a preference for cash flow opportunities in private and public markets.

“We’re expecting a broad-based ‘V-shape’ recovery in the Indian real estate market, but depending on the economic recovery and pandemic response, our estimates have substantial scope for an upward revision. We have already witnessed very positive signs of recovery in the office segment in Q3 with gross leasing at 13.8 mn sq. ft. The REITs market has done exceedingly well with the combined market cap of the India REITs at USD 6 bn accounting for 33% of the market cap of listed real estate companies,” said Ramesh Nair, CEO and Country Head (India), JLL.

Office assets remain the preferred choice

	USD mn
Asset Class	Q1	Q2	Q3	Q3/ Q2 growth rate	Total
Residential	102	48	35	-28%	185
Office	505	66	200	202%	771
Warehousing	54	41	–	-100%	93
Hotels	130	–	–	–	–
Grand Total	791	155	235	52%	1180

Source: JLL Research

The review of investments in the first nine months of 2020 reveals that out of the USD 1.2 bn investments, Bengaluru, Chennai and Mumbai together accounted for 71% share. Bengaluru led the pack with 33% share of real estate investments.

“The impact of COVID-19 on the India real estate market has been unprecedented, but investors have remained bullish on the long-term prospects and voted with their deployments in the third quarter. Though we expect 2020 investments level to be marginally lower than 2019, the recovery will not be broad-based given that two large transactions slated to be concluded this year would account for 76% of the total investments estimated for 2020,” said Dr Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.

Lessons from past and looking ahead

Post the Global Financial Crisis (GFC), investments in Indian real estate declined by 71% during Q1-Q3 2009 as compared to the same period in 2008. However, investors after the brief wait came back with lessons learnt. Investments during Q1-Q3 2010 saw a recovery of 92%. This year, a similar pattern has panned from Q1-Q3 2020 wherein investments declined by 73% although on a higher base.

Green shoots of recovery like a strong response to REITs, large office and retail asset portfolio deals in progress and robust office sector fundamentals indicate that a similar pattern which was witnessed in 2010 could unfold shortly. Indian real estate has come a long way, post the global financial crisis due to structural transformation as well as regulatory reforms introduced in the last decade.

REITs: Redefining investments in Indian real estate

According to JLL, increased awareness of REITs will ensure acceptability and lead to a gradual increase in retail interest and deeper institutional involvement in this segment. Brookfield Asset Management has filed for India’s third REIT with an expected issue size of USD 600 mn. As the market matures, JLL expects global funds are looking for an established track record, an ability to remain transparent and deliver predictable returns, which were demonstrated by India’s two listed REITs.

Tag: JLL