Exploring the Future: India at 2030
The ideas, trends, and behaviors that will shape the real estate sector in 2030 are already perceptible today. Here is some growth trajectory for office, retail, residential and logistics sector.
05 Dec 2019
Today, India is home to one of the youngest populations in the world and if channeled and skilled correctly, its young working class (with a median age of 31.4 in 2030) has the potential to achieve significant productivity gains, thereby bolstering economic growth. Propelled by its strong workforce and a changing policy scenario, India’s economic growth is likely to remain strong.
As the Indian economy transitions and its workforce expands, it will offer vast development and investment opportunities for the real estate sector. The growth of cities is going to further influence the country’s built environment, while technology, demographics and environmental issues will become its new value drivers. Some are clearly evident while others are emerging quietly around us. The ideas, trends, and behaviors that will shape the real estate sector in 2030 are already perceptible today. Here are some growth trajectory for office, retail, residential and logistics sector:
Office:
In 2030, traditional workplaces will be lesser, and retention of top talent will be the topmost competitive advantage. There are various ways in which changes in work and workplaces will create opportunities to enhance long-term asset value through a better understanding and response to tenant and building user needs. In 2030, landlords will rate their building’s value not by cash flow from rent, but in cash flow from the services.
Corporations will need to challenge the owners and developers of office buildings to understand their broader role in supporting tenant businesses in 2030. Tenants will continue to push the market to enhance the worker and visitor experience; provide a robust and smart infrastructure; and enable the flexibility to manage the unpredictable space needs. If landlords are unable to provide the required flexibility, then tenants will build relationships with the emerging aggregators and third-party providers to help liquefy ‘flex’ space. Buildings will be selected to optimise this capability and create workplaces that enable space to be easily switched between public and corporate only access.
Residential:
The number of households in India is expected to surge with close to 386 million households expected by 2030, with almost 40% of Indians being urban residents by this time. However, there will also be >5,000 small urban towns (50,000-100,000 persons each) and >50,000 developed rural towns (5,000-10,000 persons each). To accommodate this burgeoning population, the scale of development is likely to change significantly as from mere standalone buildings, developers are expected to venture into integrated townships, theme-based townships, developments linked to economic activity and even self-sustaining mini townships/cities.
Demand will remain concentrated in the affordable segment and will gradually shift towards the mid-end segments. Projects launched in locations with basic physical and social infrastructure in place are expected to see greater traction. By 2030, the definition of affordable housing and mid-end housing is expected to blur, given the improving affordability of the population. 77% of India’s population will be aged below 50 by 2030. This generation prefers to rent than purchase. Close to 70% of grade A commercial space in India is leased, a trend which is expected to spill over to residential real estate.
Logistics:
As we move beyond the traditional definitions of warehouses being synonymous with only storage, we will also witness a change in the revenue models that govern the logistics landscape today. As we witness the evolution of the manufacturing sector from low value to high-value goods, storage needs will also evolve. Warehouses will evolve beyond just storage hubs and as technology permeates the sector, lease terms may witness a shift in gears, with rental flows not being defined by area leased but by the volume or even value of goods stored. It is important that new warehouses have the possibility to be used differently. As a result, hybrids of industrial facilities, distribution centres and retail, with more space for data centres, and offices are likely to emerge. Vacant spaces can be let or sublet just like in business centres. Under these circumstances, facilities that can be refurbished to accommodate market requirements will be in higher demand.
Retail:
The role of the store is already changing and will change even more going forward. The success of a store will no longer be defined via the turnover the individual unit generates, but by the value that the store creates. A successful retailer will be defined not only by turnover, but by how well it analyses data. From being defined as sales /sq. ft. or conversion rates, store performance will be defined by metrics such as foot traffic, touch points, dwell time etc. Lease structures dependent on a percentage of turnover will also need to be restructured as the metrics of store performance shift.
Lease terms will get increasingly flexible. While there will be a proportion of occupiers that will need longer leases to allow the depreciation of fit out costs over a longer period of time, these occupiers will be in a minority. Also, assets will be set up to allow for lower fit out costs –including the growing digitization of fixtures, displays and fittings and their comparably lower software content costs. This flexibility will percolate at the store level as well - stores that remain underutilised may serve more purpose than one, especially ones that are either in grade B properties/far flung locations. These stores may be used as collection points for online shopping/ last-mile delivery.
Conclusion:
The four major factors expected to drive India’s aspired economic growth are promotion of human capital (education, skill development and health), infrastructure enhancement, strengthening of institutions (governance, administration and law), and policy reforms. Among these, human capital will be one of the fastest growing components of India’s wealth. The United Nations Sustainable Development Goals (SDGs) agenda for 2030 highlights that increasing the participation of women in workforce will be a key factor for global economies to achieve future growth aspirations.
While India's working population is expected to increase by around 12 million annually over the next 10 years, the country currently lags in terms of labour force participation. CBRE Research looked at different countries and cities across the world and six dimensions emerged as the pillars of growth for any city. These include investment, governance, sectoral growth, planning, implementation and growth management.
As the Indian economy transitions and its workforce expands, it will offer vast development and investment opportunities for the real estate sector. The growth of cities is going to further influence the country’s built environment, while technology, demographics and environmental issues will become its new value drivers. Some are clearly evident while others are emerging quietly around us. The ideas, trends, and behaviors that will shape the real estate sector in 2030 are already perceptible today. Here are some growth trajectory for office, retail, residential and logistics sector:
Office:
In 2030, traditional workplaces will be lesser, and retention of top talent will be the topmost competitive advantage. There are various ways in which changes in work and workplaces will create opportunities to enhance long-term asset value through a better understanding and response to tenant and building user needs. In 2030, landlords will rate their building’s value not by cash flow from rent, but in cash flow from the services.
Corporations will need to challenge the owners and developers of office buildings to understand their broader role in supporting tenant businesses in 2030. Tenants will continue to push the market to enhance the worker and visitor experience; provide a robust and smart infrastructure; and enable the flexibility to manage the unpredictable space needs. If landlords are unable to provide the required flexibility, then tenants will build relationships with the emerging aggregators and third-party providers to help liquefy ‘flex’ space. Buildings will be selected to optimise this capability and create workplaces that enable space to be easily switched between public and corporate only access.
Residential:
The number of households in India is expected to surge with close to 386 million households expected by 2030, with almost 40% of Indians being urban residents by this time. However, there will also be >5,000 small urban towns (50,000-100,000 persons each) and >50,000 developed rural towns (5,000-10,000 persons each). To accommodate this burgeoning population, the scale of development is likely to change significantly as from mere standalone buildings, developers are expected to venture into integrated townships, theme-based townships, developments linked to economic activity and even self-sustaining mini townships/cities.
Demand will remain concentrated in the affordable segment and will gradually shift towards the mid-end segments. Projects launched in locations with basic physical and social infrastructure in place are expected to see greater traction. By 2030, the definition of affordable housing and mid-end housing is expected to blur, given the improving affordability of the population. 77% of India’s population will be aged below 50 by 2030. This generation prefers to rent than purchase. Close to 70% of grade A commercial space in India is leased, a trend which is expected to spill over to residential real estate.
Logistics:
As we move beyond the traditional definitions of warehouses being synonymous with only storage, we will also witness a change in the revenue models that govern the logistics landscape today. As we witness the evolution of the manufacturing sector from low value to high-value goods, storage needs will also evolve. Warehouses will evolve beyond just storage hubs and as technology permeates the sector, lease terms may witness a shift in gears, with rental flows not being defined by area leased but by the volume or even value of goods stored. It is important that new warehouses have the possibility to be used differently. As a result, hybrids of industrial facilities, distribution centres and retail, with more space for data centres, and offices are likely to emerge. Vacant spaces can be let or sublet just like in business centres. Under these circumstances, facilities that can be refurbished to accommodate market requirements will be in higher demand.
Retail:
The role of the store is already changing and will change even more going forward. The success of a store will no longer be defined via the turnover the individual unit generates, but by the value that the store creates. A successful retailer will be defined not only by turnover, but by how well it analyses data. From being defined as sales /sq. ft. or conversion rates, store performance will be defined by metrics such as foot traffic, touch points, dwell time etc. Lease structures dependent on a percentage of turnover will also need to be restructured as the metrics of store performance shift.
Lease terms will get increasingly flexible. While there will be a proportion of occupiers that will need longer leases to allow the depreciation of fit out costs over a longer period of time, these occupiers will be in a minority. Also, assets will be set up to allow for lower fit out costs –including the growing digitization of fixtures, displays and fittings and their comparably lower software content costs. This flexibility will percolate at the store level as well - stores that remain underutilised may serve more purpose than one, especially ones that are either in grade B properties/far flung locations. These stores may be used as collection points for online shopping/ last-mile delivery.
Conclusion:
The four major factors expected to drive India’s aspired economic growth are promotion of human capital (education, skill development and health), infrastructure enhancement, strengthening of institutions (governance, administration and law), and policy reforms. Among these, human capital will be one of the fastest growing components of India’s wealth. The United Nations Sustainable Development Goals (SDGs) agenda for 2030 highlights that increasing the participation of women in workforce will be a key factor for global economies to achieve future growth aspirations.
While India's working population is expected to increase by around 12 million annually over the next 10 years, the country currently lags in terms of labour force participation. CBRE Research looked at different countries and cities across the world and six dimensions emerged as the pillars of growth for any city. These include investment, governance, sectoral growth, planning, implementation and growth management.