We expect commercial supply to increase in 2019. Nevertheless, we expect rents to strengthen owing to sustained occupier interest from technology and flexible workplace operators. Bengaluru, the NCR and Mumbai should remain the top three cities measured by gross leasing, closely chased by Hyderabad.

> Developers should continue to focus on affordable housing and develop industrial & warehousing assets as well as data centres, for which demand should be firm.

> Occupiers should adopt a flex and core model, and consider expanding in peripheral locations to manage costs and enhance efficiency.

> Investors may consider investments in stressed assets as liquidity tightens.

Summary &Recommendations

COLLIERS OUTLOOK INDIA | RESEARCH | 16 JANUARY 2019

Note: USD1.0 to INR71.32 as of 10 December 2018; 1 sq m = 10.76 sq. = favourable impact = unfavourable impact = neutral impact

> Warehousing and logistics to see increased interest from developers and investors

> Growth rate of office net absorption may taper;demand for flexible workspace on rise

> REITs to bring in professional management, transparency and international standards to income-yielding commercial assets

> Peripheral locations to witness increasedactivity

> Affordable housing to remain in focus whilenew segments should see increased momentum

Developers Occupiers Investors

Diksha GulatiManager | Research | Mumbai

+91 77 0090 1826diksha.gulati@colliers.com

Saif LariAssistant Manager | Research | NCR

+91 81 3008 0609saif.lari@colliers.com

> Sustainable developments to gain attention

> Data centre regulation to boost demand

DIVERSE ARRAY OF OPPORTUNITIES2019 Pan-India trends in the real estate sector

> Amidst robust absorption and significant supply infusion expected in 2019, we expect rents and capital values to grow along with declining overall vacancy levels

Rental Market Vacancy Capital Value

Office2.2% 1.8%

-1.5 percentage

points

2

COLLIERS OUTLOOK INDIA | RESEARCH | 16 JANUARY 2019

NET ABSORPTION GROWTH RATE MAY TAPERTrend 1

Technology advancements and the adoption of alternative workplace strategies are a double-edged sword bringing efficiencies on one hand and shrinking workspace on the other. Additionally, the impact of Artificial Intelligence (AI) should be felt increasingly over the next decade. Routine roles such as call centre operators will likely be among the first types of jobs to be replaced by AI. The adoption of these technologies is driving efficiencies in real estate, but is also leading to uncertainty over future headcount. As a result, the traditional strategy of acquiring sizable offices is being reconsidered by occupiers.

Further, a changing workforce profile is necessitating the shift to more collaborative and agile workspaces. Activity-based workplaces are gaining prominence. The rising proportion of millennials in the workforce is influencing the layout and design of office space, with work no longer being done just at a desk. Office needs are changing to accommodate various activities for both mobile and static staff.

At the same time, Corporate Real Estate (CRE) leaders are moving towards framing workplace strategies defined to optimize space usage and people's performance. Our data indicates the average area of an office lease in India has declined by 18% from 45,200 sq feet (4,201 sq metres) in 2016 to 37,100 sq feet (3,448 sq metres) in 2018. Although the number of transactions has increased, this suggests shrinking workplaces as a result of increased efficiencies with improved per sq foot occupancy. We expect net absorption to increase yoy, albeit at a slower pace against the backdrop of growing need for workspace efficiency and cost effectiveness.

Flexibility, collaboration, workspace efficiency, employee retention and cost effectiveness should continue to be the key focus areas of CRE leaders in 2019. We advise developers to reformulate their workplace designs to cater to the changing dynamics of the workplace environment.

We also recommend occupiers to adopt a flex and core occupancy model, that allows firms to commit to fixed real estate space for their core operations whilst keeping flexibility to alter their real estate portfolio depending on their operational requirement.

REIT LISTING TO CREATE REAL ESTATE HISTORYTrend 2

Since 2009, the Indian real estate sector has been lucrative for shrewd investors. Real Estate Investment Trusts (REITs) are intended to enable individuals to invest in the Indian property market and boost funding in the sector. Embassy Office Parks, a joint venture (JV) between Embassy Group and Blackstone Group, filed the draft offer document for the first Indian REIT in September 2018. This will likely be listed in the first quarter of 2019. The JV proposes to raise over USD701 million1 (INR50 billion) through REITs.

While a successful listing of the Embassy Office Parks REIT will probably open the floodgates for REIT listings by other asset owners, there are pre-requisites for the listing to qualify as being called successful. The success of REITs is directly proportional to the appetite of international investors for Indian REITs as well as demand from domestic institutional investors such as insurance companies and mutual funds. The amount of excess return offered by REITs compared to Indian government securities, along with the liquidity in REITs after their listing will decide their fates.

Colliers expects REITs to be a game changer, bringing in professional management, data transparency and international standards to income-yielding commercial assets. We recommend developers to focus on building premium quality investable grade assets in order to capitalize on the asset monetization option offered by REITs.

Source: 1Economic Times article dated 24 September 2018 - https://economictimes.indiatimes.com/markets/stocks/news/blackstone-embassy-file-for-rs-5000-crore-reit/articleshow/65936753.cms

Flexibility, collaboration, workspace efficiency, employee retention and cost effectiveness should continue to be the key focus areas of CRE leaders in 2019. We advise developers to reformulate their workplace designs to cater to the changing dynamics of the workplace environment.

3

COLLIERS OUTLOOK INDIA | RESEARCH | 16 JANUARY 2019

Peripheral locations statistics

Micromarket, CityExisting Stock(Million sq ft)

Expected Supply Infusion till 2021

(Million sq ft)

Rental ArbitrageCompared to Average City

Rents(%)

North Bengaluru, Bengaluru

4.0 5.6 22%

Golf Course Extension Road, Gurugram* 8.2 9.2 48%

Navi Mumbai, Mumbai 20.0 7.0 38%

PERIPHERAL LOCATIONS TO WITNESS INCREASED ACTIVITYTrend 3

Overburdened infrastructure and low vacancy in quality developments in established business districts are pushing occupiers and developers to shift their focus to peripheral locations. Colliers anticipates that peripheral locations, such as North Bengaluru in Bengaluru, Golf Course Extension Road (GCER) in NCR and Navi Mumbai in Mumbai, will probably gain increased occupier interest.

Bengaluru

Infrastructure projects such as the Peripheral Ring Road (PRR), Red Line of the Namma Metro (29km stretch) and the elevated corridors are planned to improve connectivity between North Bengaluru and the Central Business District (CBD). About 5.6 million sq feet (520,445 sq metres) of new supply is planned in North Bengaluru by 2021, which accounts for 15% of the total supply in the city and provides expansion and consolidation opportunity especially to technology occupiers. The rental arbitrage of up to 22% versus the city average will likely also be a key demand driver.

Gurugram

The GCER in Gurugram has seen increased occupier interest owing to lower rents in the range of USD0.7-0.9 psf per month (INR55-65 psf per month) compared to USD1.4-1.8 psf per month (INR100-130 psf per month) in other major micromarkets of Gurugram. The extension of Gurugram's Rapid Metro to GCER, the availability of premium quality developments and rising rents elsewhere are the primary drivers of this trend. The rapid metro connectivity to Golf Course Road and accessibility to National Highway 8 via Southern Peripheral Road have enhanced attractiveness among occupiers. The micromarket has about 9.2 million sq feet (855,020 sq metres) of supply under construction through 2021, accounting for 46% of total upcoming supply in Gurugram.

Source: Colliers International *Compared with average rents of Cyber City, MG Road and Golf Course Road

Mumbai

Navi Mumbai is attracting interest from occupiers and developers due to lower rents, availability of larger contiguous floor plates and improving infrastructure. The micromarket offers 38% lower rents than the city average. Of the total supply scheduled to appear in Mumbai through 2021, 44% is planned to be in Navi Mumbai. A number of occupiers are considering this micromarket for expansion and consolidation for their back office IT operations. The upcoming international airport in Navi Mumbai, Phase 1 of which is planned to be completed by 2019, is driving demand.

Technology occupiers following a cost-sensitive strategy or those looking for contiguous spaces for consolidating their back office operations should consider spaces in peripheral locations. We recommend developers capture development opportunities to cater to rising occupiers’ demand for large and efficient floor plates.

Peripheral locations across top 3 cities of Bengaluru, NCR and Mumbaioffer rental arbitrage in the range of 22% -48% compared to the respective city average rent

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COLLIERS OUTLOOK INDIA | RESEARCH | 16 JANUARY 2019

Source: 2Trend-setting millennials, Report by Deloitte; 3OTA/Hotel Aggregators Market Updates, RedSeer Management Consulting

AFFORDABLE HOUSING TO REMAIN IN FOCUSTrend 4

Housing has been one of the priority sectors of the government and is witnessing glimpses of revival across major cities, reflecting an environment friendly to buyers and investors. This can be attributed to the benefits of the implementation of the Real Estate Regulatory Authority (RERA) and the Insolvency and Bankruptcy Code amendment (IBC). Housing for All by 2022 is said to be the most ambitious scheme of the contemporary administration. The housing ministry assessed a housing shortage of 19 million units, mostly in the affordable segment. In an effort to address this, the government has already delivered about 900,000 houses in the urban areas. To push affordable housing sales, schemes like the Credit Linked Subsidy Scheme (CLSS), are helping lower-income individuals in buying their first house. As of November 2018, about 275,000 individuals have used the subsidy. In an effort to keep prices affordable, the government has also lowered the Goods and Sales Tax (GST) rate from 12% to 8% on affordable houses under-construction.

Owing to these reforms, over the first nine months of 2018, the residential market saw increased new launches, with the number touching about 150,000 units across seven major cities. Developers are more aware of the market need for affordable and mid-segment housing, since out of the overall residential units launched about 45% belong to the affordable segment alone. We expect developers to stay focused on providing affordable housing for the next three to five years backed by various government incentives and market demand.

Investors are rapidly looking at alternative residential assets which provide better yields. As of now, the residential yield across the top Indian cities is in the range of 2%-3%. Hence, we expect the trend of steady and higher rent generating assets like senior living, student housing and co-living to be increasingly popular in the coming years.

> Co-living is increasingly gaining acceptance as companies like Nestaway, CoHo, Zolo and StayAbode among others offer flexible and affordable options to 440 million millennials2, that constitutes nearly 34% of India’s total population. The last couple of years have seen the co-living market grow rapidly to reach a significant scale, driven by players like NestAway and others which doubled supply to almost 50,000 beds3 in 2018.

> According to the Census of India 2011, India had about 98 million elderly citizens, and this is likely to grow in future. Many developers such as Max, Ashiana Housing, Brigade and Vedaanta are offering senior living projects to capture this demand. Such developments are usually for people over the age of 55, offering facilities like fully serviced houses, in-home care, nursing facilities and recreational activities which may be included in a standard fee.

> We expect student housing to be a long-term option for investors looking for alternative living models. In this sector, companies like Stanza Living have raised about a combined USD12 million (INR856 million) from a consortium comprising Sequoia Capital, Accel Partners and Matrix Partners. In another recent deal, Placio, a start-up, raised about USD2.0 million (INR143 million) from Prestellar Ventures to invest in student housing. Although the investment trend has just begun to emerge, we expect the momentum to pick up in times to come.

Due to the rising demand for affordable housing and alternative asset segments, we suggest developers incorporate these niche asset classes of co-living, senior living and student housing in their strategies. Developers can also look at forging alliances for the operations and management of concepts like senior living and co-living with established operators.

USD14 Billion

USD14 billion

According to the Housing for All 2022 scheme, the government is expected to make a USD14 billion investment in another 10 million urban dwellings

Due to the rising demand for affordable housing and alternative asset segments, we suggest developers to incorporate these niche asset classes of co-living, senior living and student housing in their strategies

5

COLLIERS OUTLOOK INDIA | RESEARCH | 16 JANUARY 2019

WAREHOUSING AND LOGISTICS TO SEE INCREASED INTEREST BY DEVELOPERS AND INVESTORSTrend 5

The logistics sector has received a much-needed boost from the government in the form of infrastructure status and the implementation of the Goods and Services Tax (GST). India’s position has moved up in the World Bank Logistics Performance Index, in terms of overall logistics performance from 54 in 2014 to 35 in 2016. The granting of infrastructure status to the logistics sector has enabled companies to access lower cost credit, with longer tenures and enhanced limits. The GST benefited the sector by eliminating a patchwork of state-by-state boundaries and making way for the cost-effective Hub & Spoke Model of logistics operations. Based on the Economic Survey 2017-20184, improving the logistics sector has an impact on exports, because an estimated 10% decrease in indirect logistics cost can increase exports 5-8%. The survey suggests that the Indian logistics industry, which is worth around USD160 billion (INR11.4 trillion) in 2018, is likely to reach USD215 billion (INR15.3 trillion) in 2020 with the implementation of GST. The sector has grown at a CAGR of 7.8% during the last five years and we expect growth at a CAGR of 10.5% till 2020.

Developers are becoming active and we see an increase in strategic partnerships in the logistics sector. For example, IndoSpace and GLP formed a JV for developing modern logistics facilities in India. ESR-Allianz Real Estate JV has announced investment of USD1 billion (INR71 billion) in India to develop large-scale logistics and industrial facilities.

According to Real Capital Analytics, the sector attracted USD1.4 billion (INR100 billion) of cumulative investments in 2017 and YTD 2018 (January to November), accounting for nearly 12% of total institutional investments in India during the same period. As a result of the increased participation of investors and developers, we expect the total warehousing stock in major cities in India to grow, backed by strong demand from the manufacturing and e-commerce sectors.

In our opinion, developers should continue to expand in the industrial and warehousing sector, acquiring more developable land for the purpose. Developers should cater to the specific requirements of occupiers, providing customized solutions to them. For example, occupiers in the e-commerce sector will prefer to lease out warehousing facilities in close proximity to the city boundaries to ensure faster delivery of goods.

1. ESR and Allianz Real Estate to invest USD1 billion in developing large-

scale logistics

2. Temasek Holdings and Ascendas-Singbridge to invest USD300 million

in logistics and industrial real estate in key cities in India

3. Altico Capital India invested USD90 million in Renaissance Group’s

warehousing project

Source: Colliers International, multiple media articles

https://www.allianz-realestate.com/en/newsroom/press-releases/11-23-18-allianz-collaborates-with-esr

https://www.vccircle.com/temasek-ascendas-singbridge-to-invest-300-mn-in-indian-logistics/

https://www.vccircle.com/altico-capital-invests-90-mn-in-renaissance-group-s-warehousing-project/

PROMINENT INVESTMENT DEALSIN LOGISTICS IN 2018

Source: 4www.financialexpress.com/budget/economic-survey-2018-indias-logistics-sector-to-reach-215-billion-by-2020

Indian logistics industry, which is worth USD160 billion in 2018 is likely to reach USD215 billion in 2020, growing at a CAGR of 10.5%

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COLLIERS OUTLOOK INDIA | RESEARCH | 16 JANUARY 2019

SUSTAINABLE DEVELOPMENTS WILL GAIN ATTENTIONTrend 6

According to a recent World Health Organisation (WHO) study, nine of the ten most polluted cities in the world are in India. The dire environmental situation is often blamed on fast-paced industrial development with a limited industrial regulation. With such a backdrop, the adoption of more sustainable alternatives becomes almost indispensable. As the real estate market becomes more conscious of the environmental causes, we expect to see an increase in green buildings footprint across the nation. On the positive side, India has already achieved 5.0 million sq feet (464,515 sqmetres) of green buildings. According to the Confederation of India Industry-Indian Green Building Council, currently India houses 4,500 green certified projects. This is second only to the United States, and this number is likely to hit 10.0 million sq feet (929,030 sq metres) by 2022.

The government is also providing a flurry of incentives to developers, such as development charges rebates, higher floor-area-ratios (FAR) and reduction of property taxes. We expect the green building segment to grow hand-in-hand with initiatives like 100 smart cities, which is an urban renewal and retrofitting programme by the government of India with the mission to develop 100 cities across the country making them citizen-friendly and sustainable.

As many of the Fortune 500 companies have started taking both the environment and the well-being of the staff in their workplace seriously, we suggest developers follow this trend in order to take advantage of the rising demand from corporate occupiers and the lucrative incentives provided by the government for construction of green buildings. According to the International Finance Corporation (IFC), the green building sector in India will attract USD1.4 trillion (INR100 trillion) in investment by 2030. Therefore, sustainable developments also promise to generate a large revenue stream for investors. Investors should acquire green buildings in their portfolio so they can enjoy longer periods of high returns due to lower maintenance costs, greater efficiency and reduced risks compared to traditional buildings.

DATA CENTRE REGULATION TO BOOST DEMANDTrend 7

India has emerged on the world stage as a leader in Information Technology enabled Services (IT/ITeS). Following the liberalisation of the country’s economic policies, there has been a growing need to develop complementary infrastructure in order to sustain and support this growth –especially cloud-based services which not only cater to the robust domestic and international IT demand but also aid easy implementation ofe-governance initiatives. As technology aims to transform the way industries and governments work, it also encompasses issues of data security and privacy. As the development of data centres has a role in shaping the economy, India is likely to bring forth a data protection policy in early 2019. The proposed bill requires that data processing organisations maintain transparency, appoint a Data Protection Office (DPO), undertake data audits and localize their data.

Colliers expects the demand for data centre units, equipment suppliers, and third party data centres to strengthen in 2019 and beyond. Currently, the data centre market in India is estimated to be worth USD4.9 billion (INR350 billion) and is expected to reach USD7.0 billion (INR499 billion) in the next two years, recording a growth rate of 23%-25%5. Hence, we advise occupiers to look at IT centres like Bengaluru and Hyderabad which already have the supporting infrastructure to establish data centres. As the initial set-up is substantial for any business, we suggest developers make use of first-mover advantage and develop third party colocation data centres in their IT/ITeS buildings.

Source: 5Data Quest - https://www.dqindia.com/boom-time-datacentre-services-market-will-grow/

The green building sector in India will attract USD1.4 trillion of investment by 2030

About Colliers International Group Inc.

Colliers International Group Inc. (NASDAQ: CIGI) (TSX: CIGI) is a top tier global real estate services and investment management company operating in 69 countries with a workforce of more than 13,000 professionals.Colliers is the fastest-growing publicly listed global real estate services and investment management company, with 2017 corporate revenues of $2.3 billion ($2.7 billion including affiliates). With an enterprising cultureand significant employee ownership and control, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide, and through its investment management servicesplatform, has more than $25 billion of assets under management from the world’s most respected institutional real estate investors.

Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice to accelerate the success of its clients. Colliers has been ranked among the top 100 global outsourcing firms by theInternational Association of Outsourcing Professionals for 13 consecutive years, more than any other real estate services firm. Colliers is ranked the number one property manager in the world by Commercial PropertyExecutive for two years in a row.

Colliers is led by an experienced leadership team with significant equity ownership and a proven record of delivering more than 20% annualized returns for shareholders, over more than 20 years.

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Copyright © 2019 Colliers International

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for anyinaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Primary Authors:

Diksha GulatiManager | Research | Mumbai+91 77 0090 1826diksha.gulati@colliers.com

Saif LariAssistant Manager | Research | NCR+91 81 3008 0609saif.lari@colliers.com

For further information, please contact:

Megha MaanSenior Associate Director | Research | India+91 96 6718 8334megha.maan@colliers.com