The commercial real estate outlook in India presents a varied scenario across different segments, as per a report by rating agency ICRA. The retail mall operators and warehousing sectors are experiencing growth driven by strong consumption trends.
However, the office segment, while resilient, is facing a slowdown in leasing from technology-based sectors due to global headwinds.
For retail mall operators, ICRA expects rental income to increase by 9-10 per cent on-year in the current fiscal year and a slightly lower 8-9 per cent in 2024-25. Healthy occupancy levels, growth in trading values, and rental escalations are contributing factors.
Although net absorption was robust in the first three quarters of the financial year, vacancy levels rose to 20 per cent in December 2023 due to higher new supply. ICRA anticipates sustained occupancy levels at 81-82 per cent as of March 2024, improving to 82-83 per cent by March 2025.
Retail mall operators are witnessing a rebound in footfalls and trading values, with projected trading values to improve by 14-15 per cent in FY2024 and record a 10-12 per cent expansion in FY2025. Challenges include increased digital penetration and competition from e-commerce players.
In the warehousing sector, the demand is being driven by the expansion of new-age sectors, e-commerce growth, the consumption market’s needs, and government initiatives.
ICRA predicts stable credit profiles for warehousing players, with high occupancy levels at 95% in FY2025. Rental income and NOI are expected to grow by 30-32 per cent in FY2025, supported by added capacities and scheduled escalations.
For the office segment, ICRA estimates a decline in net absorption by 19-20 per cent in the current fiscal year, with a mild growth of 4-5 per cent in 2024-25. The influx of significant supply (around 60-62 million sq ft each in 2023-24 and 2024-25) is expected to lead to an increase in vacancy levels.
The cautious approach by tenants in technology-based sectors due to global economic uncertainties is contributing to the slowdown in leasing activity. However, demand from global capability centers (GCCs), non-IT MNCs, and domestic corporates remains healthy.
The credit profile for the office segment is expected to remain stable, with improvement in occupancy and higher rentals supporting healthy growth in NOI. Leverage metrics, measured by debt/NOI, are expected to improve to 4.5 times as of March 2025 from the estimated 5.3 times as of March 2024. The debt service coverage ratio (DSCR) is forecasted to remain healthy at 1.35 times in 2024-25.
The partial denotification of IT-SEZs is expected to revive their attractiveness in the medium term. Overall, favorable demographics, a skilled talent pool, and competitive rentals are anticipated to drive demand for the Indian office portfolio in the medium to long term.
