Real estate sector: Watch out for these trends in 2024

In 2023, India’s real estate market demonstrated resilience and maintained optimism despite global uncertainties. The commercial real estate sector, especially in top cities, experienced strong demand, driven by domestic occupiers from various sectors. The office market thrived with the adoption of hybrid work models, particularly favouring flexible spaces. Stable interest rates supported the residential sector, surpassing expectations. The industrial and warehousing sector expected significant growth due to increased manufacturing and logistics demand. Institutional investments remained robust throughout the year.

Looking ahead to 2024, core real estate assets like offices, residential, and industrial & warehousing are anticipated to witness robust growth. Investors are likely to show increased interest in emerging assets such as data centres. Sustainability and digital integration are expected to shape buyer preferences, contributing to a dynamic and evolving real estate market.

Robust economic indicators (2023) 

GDP growth: Progressive at 6.5% 

India continues to be the fastest-growing major economy

Repo Rate: Steady at 6.5% 

Withdrawal of accommodation continues

CPI Inflation: Volatile at 5.55% 

Yet largely under the tolerance zone of RBI

Services PMI: Expansionary at 56.9 

13-yr high in July 2023

msf – 1000 square feet

2024: Trends to watch out for 

Office 

In the evolving landscape of the office sector, the technology industry and the Gulf Cooperation Council (GCC) are poised for a robust resurgence. Global tech giants are expected to establish their capability centers in key markets, while leading international tech companies plan expansions, emphasizing both flexible and core office spaces. Secondary, peripheral, and Tier II/III markets are anticipated to experience heightened activity, with occupiers adopting a hub-and-spoke model for efficient portfolio management. The adoption of core plus flex strategies is set to strengthen, with hybrid working becoming the norm, particularly in select Tier II cities witnessing increased activity driven by a hybrid work culture and infrastructure upgrades.

A significant shift towards sustainability is evident, with a heightened preference for sustainable standards in office spaces. The majority of new supply is expected to be green-certified, reflecting a growing emphasis on environmental, social, and governance (ESG) considerations. Special Economic Zones (SEZs) are poised for increased occupier activity, driven by regulatory changes allowing floor-wise denotification to enhance leasing opportunities and improve overall occupancy. The extension of benefits to non-SEZ entities further contributes to the dynamic transformation of the office real estate landscape.

Residential

The residential real estate sector is undergoing a transformation driven by growing tech adoption and infrastructure development. Infrastructural growth is expected to catalyse residential activity, especially in catchment areas along project corridors, leading to capital value appreciation. Developers are poised to expand into emerging markets like Vadodara, Nashik, Lucknow, Jaipur, and Chandigarh, leveraging technology with AI and cloud computing for home buying, emphasizing smart homes and digital transactions.

The surge in premium segment activity includes increased demand for second homes, vacation homes, and plotted developments, with the luxury segment witnessing a notable rise in overall sales. Additionally, co-living and housing rentals are expected to stabilize, with the co-living market picking up pace as offices return to full operation, and rental markets in top cities rationalizing across various micro markets.

Industrial and Warehousing 

The industrial and warehousing sector is poised for significant growth driven by a convergence of sustainability and technological advancements. Government initiatives such as Make in India, Gati Shakti, and Multi-Modal Logistics Parks (MMLP) are expected to elevate demand in tier I and II cities. Additionally, the rise of Q-commerce is set to fuel the need for micro-warehouses and in-city warehousing, leading to increased operational scales and a surge in demand for hub warehouses. The growth in electric vehicles (EVs) and battery manufacturing is anticipated to create a new demand frontier, with tax incentives further boosting production and real estate demand for giga factories.

Furthermore, this transformative phase in the sector is marked by an increased focus on sustainability, resulting in a heightened demand for green certified and energy-efficient warehousing spaces. Investors are expected to scrutinize sustainable elements more rigorously, shaping the future landscape of the industry. Amidst these changes, consolidation is on the horizon, fostering increased institutionalization that brings expertise in technologies and sets the stage for the potential emergence of Real Estate Investment Trusts (REITs) within the industrial and warehousing domain.

Investment 

The investment landscape is poised for significant growth, driven by increased stability. The industrial and logistics sector is expected to experience a surge in investments, fueled by rising warehousing demand from third-party logistics (3PL) and e-commerce players. Furthermore, the prominence of green financing and sustainability reporting, mandated by the increasing emphasis on environmental, social, and governance (ESG) criteria, will drive investors towards portfolios with well-defined sustainability goals.

Additionally, investors are set to explore alternative asset classes, such as data centres, life sciences, and co-living, as part of a broader strategy. Different deal structures, including performance credit, special situations, and asset reconstruction, will continue to grow, with amendments in alternate investment funds (AIFs), green financing, and real estate investment trusts (REITs) aimed at simplifying investment processes. The creation of more platforms and joint ventures with developers is anticipated, leveraging upcoming opportunities with over 150 million square feet of office assets set to be available in the next three years.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.