The overall trend for residential real estate remains subdued and the sustainability of this demand will depend on the ensuing economic and employment scenario where the silver lining is that the worst seems to be over
The pandemic has been the single most disruptive force that we have seen in our lifetimes, with disruptions and uncertainties unleashed globally. Needless to say, transactions in the real estate and infrastructure sectors also got impacted by it.
One of the main outcomes of the pandemic has been the enhanced desire for risk mitigation by real estate developers. This manifested in two of the largest office space portfolio divestments this year. These transactions provided the owner-developers with an avenue to monetise the development margin as well as the ability to move to sustainable leverage positions. They also marked a continuity of the trend of institutional capital’s appetite for the office space asset class
Tailwinds for commercial real estate to continue in 2021
This continued interest is despite the pandemic’s oft-stated impact on office space due to the rising work-from-home trend. Some of the factors that play contrary to this hypothesis are the need for quality office spaces that meet the safety and well-being requirements, enhanced physical distancing norms which require a reversal of the office densification trends, and the positive impact on the IT sector which is one of the largest occupiers.
Monetary trends such as low interest rates and global liquidity have also bolstered the appetite for these transactions. Another key development with respect to office space was the successful listing of India’s second office REIT in these pandemic times. The tailwinds for this asset class should continue in the future.
Residential demand to depend on ensuing economic and employment scenario
Amongst other real estate asset classes, residential has seen a marked recovery in fundamental demand over the last few months given the low housing finance rates, the need felt by some for owned spaces and reduction of stamp duty in some states. However, the overall trend remains subdued and the sustainability of this demand will depend on the ensuing economic and employment scenario where the silver lining is that the worst seems to be over.
Transactions in this asset class can gain some traction with themes like inventory funding, last mile funding and affordable/mid-market housing gaining ground. The challenge for last mile funding or refinancing continues to be the thin slice of residual equity in projects and hence transaction activity is likely to be moderate at best.
Investor activity in retail segment expected to remain subdued
Retail will continue to be a challenging asset class for some time from an investment perspective. It has been the most affected by the pandemic in the short-term through lockdowns, social distancing norms and the concerns around closed spaces, and the medium term impact through potential consumer down-trading, the strengthening of online shopping trends and the lower income growth rates. Investor activity in this sector is expected to remain subdued.
Warehousing and data centre segments to hold investor interest
Finally, the green shoots are the warehousing and data centre asset classes. Both these asset classes have gained traction due to the sustainable demand boost provided by the increasing digitisation of all aspects of the economy and significant investor interest is expected in the coming years
https://www.moneycontrol.com/news/real-estate-2/real-estate-infrastructure-sectors-in-2021-the-road-ahead-6300171.html
