The year 2022 wrapped up an eventful period, interspersed with mounting apprehensions regarding geopolitical headwinds emanating from several global predicaments, and yet, offset by robust market sentiments as seen in the office and residential markets of the country. While the pandemic subsided to a great extent, the economy remained largely on the back foot owing to rising inflationary trends. The real estate market, however, had much to cheer as it nearly achieved pre-pandemic level of activity, buoyed by pent-up demand and changing requirements arising from the crisis.
As we step into 2023 with cautious optimism, given the threat of global economic constraints and other intrinsic concerns impacting the sector, we look at some of the key expectations for the period:
Steady momentum in residential market despite imminent price rise – Residential market sentiments would continue to remain high, led by the need for home ownership – a trait that became more emphasized during the pandemic. However, with home loan EMIs set to increase in tandem with the repo rate increase, coupled with rising cost of construction leading to inevitable price increase, prospective buyers might be compelled to reassess their buying decisions. While this may impact first-time home buyers who rely mostly on home loans, and affect sales to some extent, housing is a quintessential need and residential demand is unlikely to be dispelled. With developers coming up with products suiting budget categories and customer preferences, the residential market will remain positive in the forthcoming period.
Office market, led by flexible workspaces, to see increased traction – The office market of the country will see robust absorption in the new year as major IT companies continue to resume offline work. Demand for flexible workspace among large enterprise clients as well as start-ups is expected to rise substantially in the coming year. With an increasing number of flexible workspace facilities coming up across cities to cater to the demand of start-ups and SMEs, the sector is expected to strengthen further in 2023 and prove to be a significant game changer for the country’s commercial real estate market. Tech-enabled workspaces are set to rise, given that smooth return-to-work policies and employee wellness are priority.
National Logistics Policy to boost warehousing sector - With the NLP seeking to lower logistics cost to a global average of 8% by 2030, this would have a positive, direct impact upon the warehousing sector in the coming year. The new year will see NLP inducing standardisation in the warehousing sector, involving both developers and government agencies, taking into consideration existing best practices to ensure development at the right cost and standards. More importantly, the policy will strive towards attracting investment from interested parties while promoting global competitiveness of Indian goods.
Tier-II cities to emerge stronger as viable real estate markets - With several ongoing industrial corridor development projects as part of the National Industrial Corridor Programme aimed towards the development of futuristic industrial cities, along with a slew of infrastructure projects, Tier II cities would garner further interest of real estate stakeholders in the coming year, bridging the gap between these and Tier-I cities. These initiatives will eventually provide increased scope for the office and residential sector with better development and connectivity.
Attention to ESG and sustainable development - ESG, today, is fast getting imbibed into developer and investor objectives and is turning into a key factor in decision making. The responsibility to conform with ESG parameters has widened to include not only developers, investors, financial institutions, and concerned authorities but also occupiers or end users of space. Given India’s commitment towards achieving net zero carbon target by 2070, developers would be led to focus on sustainable buildings as well as adhering to ESG requirements in order to attract the interest of investors and occupiers alike.
Investors have also been observed to increase their exposure to emerging alternative asset classes such as data centres and life sciences R&D centres - the momentum expected to pick up in the coming year. Meanwhile, REITs have continued to evolve and, along with fractional ownership, is touted to be a game changer for the real estate sector. Thus, with the real estate industry in India, having largely emerged out of the adversities led by the pandemic, would continue its onward journey, focussing on newer avenues of growth in the new year.