As major economies of the world grappled with recession, Indian economy witnessed significant growth across sectors on the back of strong fundamentals, robust demand, and government-led investments. As per IMF’s World Economic Outlook Report in October 2023, Indian economy expanded by 7.2% in FY23, the highest amongst major economies of the world. Following the same trend, it is anticipated to grow by 6.3% in FY24 compared to 3% growth in the world economy. As a result, the real estate sector, which contributes significantly to India’s GDP, registered heightened real estate activities in 2023 and is expected to maintain its growth momentum in 2024 as well.
Robust Demand for Quality Grade-A & Flexible Office Spaces
Office market is projected to grow in 2024 as more and more companies have mandated work-from-office policies. With an increasing number of employees returning to the workplace, companies are anticipated to expand and lease new office spaces. However, companies will exercise caution while leasing owing to the global macroeconomic uncertainty.
Flexible spaces are likely to gain traction on account of the flexibility they provide to their tenants. In our recent report ‘Flexing the Workplace: Back to Office’, we witnessed a shift in demand for flexible spaces from small and medium-scale enterprises to large conglomerates. Presently, flexible spaces have around 53.4 Mn sq ft of stock which is estimated to cross 81 Mn sq ft in the next 2 years with increased adoption of flexible spaces by large enterprises.
Additionally, as the global community intensifies its efforts to address climate change, the office sector is expected to focus on sustainable designs and renewable sources of energy.
Housing Sector to Stay Vibrant Despite Global Headwinds
Residential market is anticipated to maintain its upward trajectory in the coming years, driven by the prevailing sentiment of homeownership . As inflation is under RBI’s upper tolerance limit currently, 2024 might see a reduction in repo rates. This may reduce home loan EMIs, influencing homebuyers to register a purchase.
Several developers are strategically targeting all income segments with their diversified offerings in their upcoming projects. Multiple options across price points is expected to allow homebuyers to choose the best option as per their need, consequently boosting the demand for residential assets.
Retail Businesses Continue to Flourish on Domestic Demand
Retail sector was negatively impacted during the pandemic. However, it recovered quickly as domestic demand surged between 2021 and 2023. The trend is likely to continue as a large portion of the consumer pie is a younger demographic that believes in spending. Moreover, with easy payment options and variety of choice, the share of organized retail is likely to increase further.
Coming years may see the announcement of a Draft National Retail Policy that may further shape the landscape of the sector, as it will help address challenges that the retail sector faces, that include difficulties in starting a business, securing approvals, operational difficulties. It will also help with focused initiatives that will support growth of the sector. For example currently, retail establishments do not come under MSMEs, keeping the sector away from the government’s announced stimulus packages for MSMEs.
Hotel Industry to Grow with an Increase in Domestic Travel
Favorable demographics, robust domestic demand, and increased investments influenced hospitality industry in 2023, breaching the pre-pandemic occupancy levels . However, ‘revenge travel’ gradually declined but leisure travel remained strong. This trend may continue in 2024 as well, resulting in sustained growth. Growth in religious and spiritual tourism, cruise tourism, and medical tourism along with government’s focus on infrastructure development is likely to nudge the demand for hotels in the future.
Rising Appeal of Tier II Cities Fueled by Affordability and Upcoming Infrastructure Developments
Tier II cities are anticipated to emerge as attractive business centres for large multinational corporations due to cost advantages and availability of local talent pool. This may inflate demand for residential assets along with office spaces in these cities.
Under ‘Smart City Mission’, tier II cities are expected to see development on several fronts, including social infrastructure, road networks, real estate. This will improve liveability quotient of these cities, attracting people from nearby areas.
Development of roads and industrial corridors throughout the country is set to uplift the connectivity and economic profile of tier II cities, making them more appealing for logistics companies to establish their facilities. Additionally, demand for warehouses in these cities may further increase on the back of rapid expansion in the e-commerce market.
ESG and Sustainability to Become More Prominent as the Country Marches Towards Carbon Neutrality
Environmental, social and governance (ESG) considerations have become integral to today’s business requirements. Adherence to ESG guidelines is now regarded as a collective responsibility by all stakeholders. As India progresses towards its target of reducing carbon emissions by 50% by 2050 and Net Zero Emissions by 2070, sustainable buildings and the use of eco-friendly materials are expected to increase. Developers are anticipated to harness technological advancements to construct green buildings, contributing significantly to the reduction of the construction industry’s carbon footprint. Furthermore, India has proposed to host COP33 in 2028, denoting the seriousness of its intentions and pushing itse green agenda further.
With increasing influence of Real Estate Investment Trusts (REITs) and expanding presence of alternate asset classes (data centres and co-working), real estate industry is on the cusp of robust growth in 2024. Investors are directing their attention towards data centers, warehouses, and IT parks, anticipating better returns. This strategic shift is expected to broaden their portfolio beyond the traditional confines of office and residential spaces.
Shrinivas Rao, FRICS, CEO, Vestian, said, “As India strides to become the third-largest economy in the world by 2030, the real estate sector is expected to contribute significantly to this growth journey. The dynamic interplay of factors, from a resurgent office sector fueled by return-to-office mandates to the unwavering vibrancy in the residential market, is expected to steer the real estate market in 2024.”
Rao further added, “Embracing environmental, social, and governance (ESG) considerations, the market embarks on a sustainable journey, constructing green buildings and leading India’s Net Zero Emissions goal by 2070.The future of Indian real estate sector is promising with a core focus on sustainability and innovation.”