Realty Year-Ender: A Year of Residential & Retail Resurgence

Riding high on the positive policies, and notwithstanding global headwinds, India’s resilient real estate made a mark with its impressive performance. While the residential segment saw robust demand, supply, and sales, and was on a roll, retail realty staged an impressive comeback. The commercial office segment stood its ground despite the weakening global economy having an adverse impact on occupancy.
Vinod Behl

That real estate was in the pink of health was also evident from the BSE Realty Index returning 80% in FY 24, outperforming the benchmark Sensex. This is also clearly visible from rising institutional investments. According to Vestian Research, residential investment saw a 71% YoY increase in Q3 2023 at USD 298.3 million while commercial real estate saw 9.4% YoY increase at 164.1 million USD.

Residential Real Estate

Residential real estate was booming in 2023, with sales and new launches bouncing back to pre-2015 levels, reaching the highest in 10 years during the first half of the year. Due to high demand, developers launched over 2.2 lakh new housing units. It was the luxury and mid-segment housing which gave residential realty a big push, though affordable housing also made a significant contribution. According to industry statistics, luxury housing registered a 97% YoY increase in sales during January-September, with Mumbai and Delhi-NCR majorly driving it.

Commercial Office Real Estate

On the commercial office front, leasing transactions got impacted, as in the wake of weak macroeconomic outlook in the US and Europe, global companies deferred their expansion plans to keep costs under control. The IT segment that occupies 42-45% of office space was badly hit. Bangalore, the hub of IT companies, witnessed 28% YoY decline in the absorption of leasing space to 3.6 msf. However, flexible spaces and Global Capability Centres (GCCs) turned out to be saviours. As a result of this, the commercial office segment is expected to remain buoyant with net leasing of 32-34 msf in FY 24 – the same as in 2023.

Retail Real Estate

The year saw aggressive expansion plans of retailers as a result of which retail stock touched 49.6 msf. According to industry research data, retail sector leasing witnessed 46% YoY growth in January-September period with total absorption across top 8 cities recorded at 4.73 msf. Bangalore and Delhi-NCR emerged as major drivers. It was both a mixed-use space in the form of SCOs and mall space which boosted retail real estate. A grade mall space touched 2.8 msf in the first half of the year.

Alternate Assets

Besides residential and commercial real estate, alternate asset classes played an important role in boosting real estate. Industrial and Logistics sector leasing increased by 13% during the first nine months of the year to reach 27.3 msf, largely driven by Mumbai, Chennai, and Delhi-NCR. Industrial & Warehousing segment, despite slower growth in H1 2023, picked up in Q3, recording 17 msf of gross leasing. Data centres also witnessed healthy growth. As of August 2023, 819 MW of data centre capacity was recorded across 11 msf.

Trends

The Real estate sector witnessed expansion and consolidation in 2023 with big listed players and other large reputed companies on a land buying spree, expanding their operations in their established markets, and entering new markets. Two distinct trends were seen in residential realty: while affordable housing dipped, luxury housing gained its share in the overall housing sales. Plotted developments were in high demand with Tier 2-3 cities emerging as major drivers. Another noticeable residential trend was that despite the lack of big festive offers, both end-users and investors became active in the market, pushing sales due to appreciating capital and rental values.

There were significant trends in commercial real estate during the year. In the office segment, co-working and global capability centres emerged as dominant contributors to leasing in 2023. Particularly, flex space provided a big boost to office leasing as businesses increasingly adopted flex working. The number of flex operators went up to 965 across 2320 locations, up from 400 operators across 55 cities. Improved connectivity, remote working, and spread of distributed/satellite offices in Tier 2-3 cities, served as boosters for office realty. The rise of mixed-use developments (shops cum offices and high street retail cum offices), besides the concept of new-age experiential malls, were instrumental in driving retail real estate.

Outlook

With the economy and businesses are continuing to do well, realty experts are unanimous in their view that strong housing demand is likely to persist in 2024 on account of developers’ expansion plans, a pipeline of new launches, and the long pause in interest rates.

Improved delivery and home buyers’ rising trust in under-construction property will also serve as boosters. Going forward, with a promising REIT market expected to hold 22% of Grade A office stock at 180 msf by end of 2024 and startups expected to lease around 29 msf of office space by 2024, accounting for 13% of market, the commercial office realty has bright prospects. MNCs will be keen to lease retail spaces to leverage India’s rising consumer base. RBEF estimates that nearly 60 shopping malls with a total space of 23.25 msf will be operational during 2023-25.

Things look equally promising for the Alternate Assets class. According to Ken Research Report, the e-commerce logistics industry is expected to grow to 492.8 billion by 2025 with a positive 5 year CAGR of 23.6%. Warehousing stock is expected to total to 380 msf by 2024 due to increased logistics and storage requirements, while data centre stock is expected to cross 23 msf by 2026, with a total data centre capacity of around 1800 MW.