Green-certified office stock touches 342 msf across top 6 cities: Report

September 27, 2023: Green-certified office stock has increased by over 36% since 2019 to about 342 million square foot (msf) across top six cities in India, according to a report released by real estate consulting firm CBRE South Asia. CBRE released the report titled, ‘Indian Real Estate: Taking Giant Strides – 2023 Mid-Year Outlook’ at the CII Realty 2023 conference. The CBRE-CII joint report highlights the real estate growth in India, key trends and projections for the Indian real estate sector for the remaining period of 2023.

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Enhanced focus on global and domestic Environmental, Social and Governance (ESG) regulations are driving occupiers’ flight-to-quality wave towards modern, premium and sustainable spaces in the medium to long term. Sustainable building features and operations are increasingly becoming developers’ and occupiers’ most sought-after building attributes.

Green-certified office trends in H1 2023

According to the report, 46% of the newly completed developments during H1 2023 were green-certified. Bangalore, Delhi-NCR and Mumbai are among the top three cities spearheading green-compliant office spaces with a cumulative share of approximately 68% of the total, green-certified office stock in India as of June 2023. Certified green office stock also increased substantially, growing at a CAGR of around 7.1% in the last five years.

As per the report, Bangalore tops all Indian cities with the highest green-compliant office stock, accounting for approximately 30% of the total pan-India stock, followed by Delhi-NCR with 21% and Mumbai with 17% of the total green-certified office stock in India as of June 2023. Green-certified office stock in Hyderabad accounts for 15%, Chennai 9% and Pune 8% of the total pan-India stock.

City-wise green compliant office stock in India (figures in msf)
City	2019	2020	2021	2022	As of June’23
Bangalore	82.9	89.1	94.1	101.6	104.5
Delhi NCR	53.1	57.0	63.3	68.3	70.2
Mumbai	48.0	51.7	54.1	56.6	56.6
Hyderabad	25.9	29.3	36.7	45.9	51.9
Chennai	22.4	26.1	27.3	30.3	32.6
Pune	18.7	21.1	21.6	24.6	26.2
Total	251	274.4	297.1	327.4	341.9

Global and domestic occupiers are prioritising sustainability and have committed to targets with far-reaching impact. Global and national mandates, including the Corporate Sustainability Reporting Directive (CSRD), Enhancement and Standardisation of Climate-related Disclosures, and India’s Business Responsibility and Sustainability Reports (BRSR), push occupiers to continue leasing in next-generation, green-certified office spaces.

Anshuman Magazine, chairman and CEO – India, South-East Asia, Middle East and Africa, CBRE, said, “The Indian real estate sector has demonstrated remarkable resilience in Jan-Jun’23, despite a global economic slowdown, primarily fuelled by robust domestic demand. In line with most major economies globally, the rate hike cycle in India seems to have come to a halt, with the RBI maintaining the status quo in the past two reviews. As the economy gains momentum and the real estate sector thrives, there is a growing emphasis on ESG and its compliance. We anticipate accelerated demand in modern, tech-enabled and green- compliant spaces in the upcoming quarter. Additionally, we also expect alternative segments such as GCC’s, data centres and flexible workspaces to play a pivotal role in bolstering real estate growth.”

Key real estate trends in H1 2023 and outlook

Following are some of the key real estate trends highlighted in the CBRE-CII report.

Offices

Leasing activity across real estate assets withstood global headwinds in H1 2023 and is expected to grow further in H2 2023. Office leasing activity was noted at about 26.4 msf during H1 2023, with Bangalore, Chennai and Delhi-NCR accounting for 60% of the overall leasing. An annual supply of 51-53 msf is expected for the entire 2023, with Bangalore, Hyderabad and Delhi-NCR expected to continue dominating completions. RTO planning remains on top of the occupiers’ agendas and office occupancies and utilisation rates are expected to improve further as preference grows for working more days from office.

Industrial & Logistics (I&L) sector

Space take-up in the I&L sector grew by about 35% YoY, touching 19.1 msf in H1 2023. With sustained leasing activity expected in H2 2023, I&L space take-up is likely to touch 36-38 msf in 2023, marginally surpassing the 2022 levels. Supply addition is expected to reach about 28-30 msf by the end of 2023. Projects by larger developers backed by institutional funds are expected to constitute 40% of the completions.

Select micro-markets in Mumbai, Chennai, Bangalore, Pune, Hyderabad and Ahmedabad could witness about 2-6% YoY growth in rents by the end of 2023, especially in investment-grade, tech-enhanced and strategically located assets. I&L absorption would continue to be led by the third-party logistics (3PL) and engineering & manufacturing (E&M) sectors due to the continued adoption of ‘multipolar’ supply chain strategies by occupiers and the government’s pro-investment efforts.

Retail sector

Retail leasing grew by 24% YoY in H1 2023 to 2.9 msf. Retailers and prominent developers alike are expected to continue exploring emerging untapped markets including Tier-II, III and IV cities. With malls becoming entertainment centres, footfalls in brick-and-mortar stores will continue to be on the rise, especially with the approaching festive season. Retailers will continue upgrading their stores in terms of technology, consumer engagement, redistribution of space and personalised services to ramp up their experience quotient.

Residential real estate

Residential sales in H1 2023 exceeded 150,000 units, surpassing sales reported in H1 2022 and H2 2022 by around 4% and 6%, respectively. Sustained momentum in demand led developers to launch over 150,000 new housing units in H1 2023, marking an annual growth of 11%. Despite a lagged impact of monetary tightening, 2023 could well be the year with sales crossing the 300,000 units mark by the year-end.

H2 2023 is poised to attract a substantial number of first-time buyers, with fence-sitting end-users expected to make decisions during the festive season offers and discounts. As the mid-end category by true definition has gone beyond the Rs 1 crore mark, strong demand is anticipated in the ‘sweet spot’ of Rs 1-1.5 crore price category. The premium and luxury segments are also expected to emerge as a sought-after investment avenue, particularly among HNIs and NRIs. Affordability is no longer the sole decisive factor for homebuyers as health and safety, sustainability and integration of smart home technologies have also started to emerge as being core to home-purchase decisions

Investment

While transaction closures were muted in H1 2023, the investment activity is expected to pick up pace in H2 2023, considering the strong deal pipeline. However, despite this anticipated pick up in momentum, overall capital inflows could still dip in 2023 owing to delays in decision-making and a general sentiment of caution around capital deployment. The overall investments in 2023 are expected to be in the range of $6-6.5 billion. Investment flows in real estate would remain steady over the next two years, with about $16-17 billion of cumulative inflows expected during this period.

While metros and tier-I cities would continue to be the major recipients of the equity inflows, tier-II cities could also see rising levels of investments on the back of increased real estate development activity backed by a healthy demand, particularly in the retail and I&L sectors. Investments in alternate sectors, specifically in data centres, could gain further momentum. The REITs market in India is anticipated to get more diversified with the listing of India’s first retail REIT earlier in 2023. Besides, the market is expected to witness the listing of India’s fourth office sector REIT in the upcoming quarters along with 1-2 InvITs in the warehousing space.

Data centre (DC)

By the end of 2023, the total data centre stock in India is expected to increase by about 35% annually, touching approximately 1,048 MW, with a planned supply of about 170 MW in H2 2023. With continued demand from BFSI firms, cloud service providers, social media and content streaming companies, DC occupancy levels stood at 75-80% in H1 2023. These are expected to improve further towards the end of the year.

Flexible spaces

Increasing the use of flexible spaces will continue to be a portfolio strategy for occupiers. The flexible space stock is likely to see further growth from the current stock of 59 msf as of June 2023. CBRE’s 2023 India Office Occupier Survey suggests that a major share of respondents are planning to allocate more than 10% of their office portfolios to flexible spaces. This proportion of such occupier respondents is expected to rise from 43% in Q1 2023 to 56% by 2025.

Hospitality

Demand for leisure travel continues to remain strong as ‘bleisure travel’ and ‘workcations’ concepts will continue to remain relevant. Post COVID, there has been significant interest from international hotel chains looking to tap into the growing demand for hospitality services. Indian companies are also participating actively in this segment by way of investing or expanding their presence. As regulations become stringent and country-level sustainability development goals come into focus, hospitality players are expected to accelerate their ESG journeys.

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Dhwani Meharchandani

Dhwani is a content management expert with over five years of professional experience. She has authored articles spanning diverse domains, including real estate, finance, business, health, taxation, education and more. Holding a Bachelor’s degree in Journalism and Mass Communication, Dhwani’s interests encompass reading and travelling. She is dedicated to staying updated on the latest real estate advancements in India.
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