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Real estate innovation: The next phase of growth (Column: Behind Infra Lines)

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As the Indian evolves, value-creation opportunities in will exist as much in capturing the consumption-growth upside as in pursuing strategies of specialisation. The last decade has seen significant investments in and real estate-related infrastructure, as investors braced for growth and development. The next phase of growth will be driven as much by value-added strategies as by capital market innovation in

Mapping real estate by larger secular trends would give us fascinating insights into the real pockets of demand. Some of the broad secular trends we see are rising income profiles, a gradually larger pool of senior citizens with life expectancy increasing, increased (both online and offline) and increasingly high consumption of data, among others. Not only have these trends created the need for specialised real estate, but also the need for greater partnerships between service providers and

will have to go on to add value through a broad array of services through partnerships and astute asset selection. For example, has received significant investments over the past few years. The question is: How will the market evolve as demand further picks up?

The key to warehouse businesses is twofold. Firstly, scale up from being purely to "solutions providers". Such warehouse businesses should have the capacity and know-how to cater to an increasingly large and fragmented user-base with technology, real estate and supply-chain expertise to help support the business ecosystem. While this trend has started already, the future holds greater promise and returns, if done well.

Secondly, for warehouse businesses and platforms, it is essential to keep building on the spoke and hub model. Large-scale warehouses, linked to dispersed smaller warehouses, catering to increasingly quicker delivery times is how it is going to be in the future.

Another sector where the real estate partner can provide both and relatively inexpensive access to capital to the service provider will be Assets such as hospitals and high-end laboratories need access to significant real estate. Usually, either the hospital acquires the real estate or rents it. There is potential going to purchase land to be leased to hospitals. The key to the strategy mentioned above versus piecemeal renting of hospital land is the ability of the platform to source capital at a significantly lower cost versus what the hospital chain can do.

The real estate focused platform may able to do so for a variety of reasons such as having access to a pool of investors with a lower cost of balance sheets and better credit ratings. Both the factors will provide a lower cost of capital. Additionally, for platform investors, a diversified pool of does lower the risk profile through diversification, which in turn reduces the cost of capital for real estate asset.

Such innovative will be vital to fuel the next phase of growth for such as healthcare. The ability of to focus on and have a less demanding debt-burden will be a significant in the ecosystem. Real estate-focused investors, funds and, eventually, Estate Trusts (REITs) will provide a liquid capital base with which to scale business.

Ultimately, investor-access to platforms that allow for some degree of secondary market liquidity will further help reduce the cost of capital for businesses. A combination of innovation in real estate and the "capital structure" that drives the real estate will be significant business drivers.

The previous strategy or some modified version of it will apply to many of the new sunrise sectors. A sector such as datacentres is also a component of a differentiated real estate strategy, whereby a combination of technological capacity combined with will drive the In an such as with a structural demand, value creation opportunities abound.

A word of caution: A thorough analysis of demand-supply dynamics will be critical for long-term success. Given the very nature of real estate, both macro and local factors have a significant influence on returns. Past experience suggests that when local factors are ignored, investment returns can be adversely affected even with positive macro fundamentals.

(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. Views expressed are personal. He can be contacted at or @Taponeel on Twitter)

--IANS

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, December 05 2018. 12:04 IST
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