New Delhi, December 20, 2023 : Although, the start of the year was cautious, 2023 is on course to become one of the best performing years in real estate sector across asset classes. Indian real estate market displayed exceptional resilience as optimism prevailed in domestic markets, despite volatility across the developed markets.Demand for commercial real estate is expected to match or even surpass the leasing records set in 2022.Domestic occupiers across diverse sectors such as technology, financial services, engineering &manufacturing, FMCG,andhealthcare have ensured that the India office market remains active and grows from strength to strength. With continued adoption of “office dominant-hybrid work” and “hub & spoke” models,flex spaces particularly have been in high demand. Residential segment meanwhile performed significantly better than market expectations, drawing comfort fromlargely stable interest rates. Industrial& warehousing sector too is expected to put a commendable performance in 2023 led by strong growth in manufacturing output &expansion of logistics services. Institutional investments in Indian real estate remained buoyant throughout 2023 led by investors’ unabated appetite for growth opportunities.
2024 is likely to be a year of redemption where real estate will reshape, restructure, and realign on a stronger domestic footing. Although office assets will continue to constitute the bulk of investment inflows in 2024, alternate asset classes like data centres, life sciences and shared spaces will witness increased traction. Additionally, all throughout 2024 and beyond, sustainable elements and digital touchpoints will percolate across all real estate verticals.
Office
2023 round-up:Office demand continues to remain buoyant
2023, largely anticipated to be a year of cautious optimism for commercial real estate in India, has eventually emerged stronger than market expectations. Even in the face of global geopolitical tensions and elevated inflation levels, the first three quarters of 2023 witnessed healthy leasing activity across the 6 major office markets of the country.Gross absorption touched 38 mnsq ft, equivalent to the corresponding period in 2022.Although share ofTechnology sector in overall office leasingsaw a decline from 35% in 2022 to 25% in 2023,domestic companiesacross flex spaces, Engineering & Manufacturing, and BFSI stepped up the ante in taking incremental space. This diversification underscores India office market’s adeptness incountering external challenges. 2023 is expected to close on a stronger note; the momentum is likely tocontinue,and gross absorption is anticipated to be around 50 mnsq ft, at par or better than the historic performance of 2022.Flex spaces will further solidify their presence in occupiers’ portfolio, contributing almost one-fifth of the office space demand in the country.
2024 outlook: A year of dynamism and innovation
If 2023 has beena year of successfully overcoming the initial jitters, 2024 is expected to be the year of consolidation upon strong foundations, reflecting stability in India’s office market. Occupier needs will continue to evolve and market offerings will continuously realign themselves. Strong growthprospects in Indian economy and healthy domestic outlook will keepoccupier as well as developer confidence intact. Demand- supply equilibrium will keep vacancy levels rangebound lending room for rental upside.
Secondary, peripheral and tier II/III marketsto witness heightened activity – With greater adoption of ‘Hub and spoke’ models and rental arbitrage coming into play, secondary and peripheral business districts are likely to remain office market hotspots across major cities. Occupiers will push for establishing their core offices in CBDs and at the same time seek satellite offices across secondary and
Residential
2023 round-up:Consecutive year of record high activity
Residential real estate activity in India is all set to outperform 2022, which witnessed decadal high sales across the major cities of the country. Both sales and launches in 2023, untilthe third quarter, have come close to 2022 levels. Considering thefestive boost in Q4, 2023 is likely to witness 20-30% higher sales as compared to 2022.Given heightened demand across housing categories, average pricesin 2023have increased by upto 20% on an annual basis. Despite the rise, affordability of buying houses remains intact in India. With the repo rate remaining unchanged since February, financial obligationsfor the consumerhave largely been stable. Higher growth in disposable income compared to the increase in housing prices have led to astrong housing demand throughout 2023- be it for buying or renting out purposes.
2024 outlook:Growing tech savviness amidst moderation in activity
Although the momentum in residential real estate is likely to continue into 2024, we might witness the base effect coming into play and thus growth in sales, launches and prices will remainmoderate. Withadequate inventory and uptick in ready to occupy property supply, the residential market is likely to be evenly balanced between homebuyers and developers. Developers with a track record of timely execution of projects will continue to see good traction in the market.
Leveraging technology to the fullest-Home buying experience will increasingly involve seamless integration of artificial intelligence, machine learning and cloud computing. Homebuyers across age-groups will increasingly prefer smart homes, virtual tours, and digital transactions. Evolving construction technologies and environment-friendly practices are anticipated to provide further credibility to
Industrial&warehousing
2023 round-up:Powering ahead with robust demand
Driven by government initiatives, increased institutionalization, persistent investor interest and an upswing in demand from 3PL and E-commerce players, the past few years can be envisaged as an accelerated growth phasefor the industrial & warehousing sector of the country. During the first three quarters of 2023, the industrial & warehousing market witnessed 17 mn sq ft of gross leasing, almost comparable to the corresponding period of 2022. Although Delhi NCR continued to remain the frontrunner, demand emancipating from Pune and Mumbai remained upbeat during the nine-month period in 2023. The micro markets of Bhiwandi in Mumbai and
Chakan-Talegaon in Pune witnessed maximum leasing activityat an India level. Third-party logistics players (3PLs) continued to be the top occupiers of warehousing space, contributing to about 40% share in total industrial &warehousing demand of India. Leasing momentum is expected to continue in the final quarter of 2023 led by 3PL, engineering and FMCG players and is likely to close in the range of 22-25 mn sq ft.
2024 outlook:Heightened interplay of sustainability and technological advancements
2024 is likely to be a continuation of bright prospects which will act as accelerated growth catalysts for the industrial & warehousing sector. India remains the fastest-growing major economy, harboringimmense potential for real estate demand in the sector. Backed by rising capital investments, manufacturing output and supportive government policies, the industrial &warehousing sector is expected to grow from strength to strengthin India.Furthermore, technology related aspects are going to be more pervasive throughout. Going forward, AI and IoT enabled monitoring and proliferation of smart & automated warehouses will redefine the industrial &warehousing sector.
Investments
2023 round-up:Institutional investments in Indian real estate remain firm
Institutional investments in India continued to remain resilient and attractive during January-September 2023. At USD 4.6 bn, the first three quarters witnessed a 27% YoY increase in fund inflow, despite challenging business environment during the year. At 63% , office sector drove overall investment inflows during the period; the sector also witnessed some notable large deals. Industrial &logistics sector also witnessed a 3.5X surge in
investment inflows; this can be attributed to sustained growth in manufacturing sector, which strongly corelates with consumption levels.While global investors continued to dominate funding activities with higher participation in entity-led deals, the annual growth in domestic investments was particularly remarkable at 70%. About half of the total investments by domestic investors was directed towards residential assets during the period.Institutional investment inflows for the full year is set to comfortably surpass 2022 levels of USD4.9 Bn; it has already reached 93% of the last year’s volume in the first three quarters of 2023.
2024 outlook: Stable market conditions to create opportunitygalore for investors
2024 definitely looks more positive and might see increased investor activity amidst a robust economic environment and positive play of market indicators. With global investors partnering with local developers, there is ample dry powder to be invested in the Indian real estate market, especially in office and industrial sectors which is likely to be deployed in a phased manner in the short term. Within APAC, India is expected to remain themost preferred emerging region owing to its fast-paced growth trajectory, attractive pricing, better valuations, and higher yields.Global as well as domestic investors will continue to allocate funds in various markets and asset classes while keeping their core focus towards office assets.
Corporate Comm India (CCI Newswire)
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