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As of July 26, 2024, bank credit to India's commercial real estate sector reached INR 4.85 lakh crore, up from INR 4.38 lakh crore last year, reflecting a recovery from the pandemic. Though the growth rate slowed to 10.6% from 44.9%, office leasing remains robust, with 29 million square feet leased in the first half of 2024, marking a 19% year-over-year increase. Major cities report a 50% rise in leasing activity. The sector also sees rising interest in warehousing, data centers, and retail spaces, with projections for data center capacity to triple and warehousing stock to increase by 50% by 2027.
As of July 26, 2024, bank credit extended to the commercial real estate sector reached INR 4.85 lakh crore, up from INR 4.38 lakh crore over the same period last year. This growth reflects a broader recovery and interest in the commercial sector post-pandemic. While the growth rate has slowed to 10.6% compared to a remarkable 44.9% in the previous year, it's worth noting that the economy is operating from a higher base, following a period of intense commercial activity in 2022-2023. Advertisement
One of the significant drivers of this lending is the increase in office leasing, projected to range between 50 and 60 million square feet for the entirety of 2024. In the first half of the year alone, office leasing surpassed 29 million square feet, marking a 19% increase year-over-year. Major cities like Mumbai, Delhi-NCR, and Bengaluru have seen a substantial uptick, with leasing activity in the June quarter increasing by 50%. This trend has been buoyed by stable cash flows from established corporate tenants, particularly in sectors such as information technology, financial services, and engineering. Saurabh Shatdal from Cushman & Wakefield notes that Global Capability Centres (GCCs) are likely to drive further demand, with projections suggesting an increase from 1,600 to 2,400 GCCs by 2030.
The positive outlook extends beyond just office spaces. Other sectors are also witnessing growth. Warehousing, data centers, and retail spaces have begun to attract more attention from lenders. Himanshu Jain from Satellite Developers emphasizes that diversification into these segments mitigates risk for banks, as they typically involve stable revenue streams. The improving market for data centers is particularly noteworthy, with major industrial players and private equity firms investing heavily. India's data center capacity is expected to expand significantly, potentially tripling to 3.3 GW by 2028. Simultaneously, the warehousing sector is anticipated to see a 50% increase in stock to nearly 600 million square feet by 2027.
A report by CRISIL Ratings highlights that enhanced absorption rates in the sector are helping to alleviate rising vacancy levels. This is further supported by a recent move to denotify underperforming Special Economic Zones (SEZs), which is expected to improve cash flows for entities in this space. An analysis by CRISIL shows that office space owners with significant debt and a total leasable area of over 150 million square feet-representing about 20% of Grade A office space in top cities-are positioned for better credit ratings due to these dynamics.
In conclusion, the commercial real estate sector in India is navigating through a period of transformation. While traditional office spaces continue to dominate the lending landscape, the rise of alternative assets like warehouses and data centers is reshaping the market. This diversification not only enhances stability but also presents new opportunities for lenders and investors alike as they adapt to changing economic conditions.
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