The outlook for the real estate sector appears positive in 2023 with growth expected in both the commercial and the residential segments. Different research reports on the sector and views from real estate players indicate a positive momentum in 2023.
As per a year-end report from real estate services firm JLL, the office, residential as well as warehousing segments have performed extremely well in 2022 and are expected to continue their upward trajectory in 2023 as well. Similarly, as per CRISIL, amid the recession buzz, office leasing is still expected to grow 10-15 per cent in the next fiscal too and despite the growth momentum tempering, credit profiles of commercial realtors are expected to remain healthy.
As per JLL, the net absorption in office space for 2022 is likely to be up 50 per cent Y-o-Y with 2023 expected to further build on the gains of this year. As per the report, supply addition and forecast pipeline remain strong with institutional share at 30 per cent; headline vacancy is likely to inch up within a tight range.
The net absorption in 2023 for office space is expected to be at 37-40 million sqft. The report observes that there is a slight decline in space take-up by technology firms, but manufacturing, healthcare and flex are major movers in 2022 and are also expected to remain big drivers of office demand in 2023. The technology, as well as the GCC story, will continue to support the office market momentum in 2023 as well.
“The year 2022 has been the year of a sustained turnaround for the Indian real estate sector, after two Covid-impacted years. The Indian office markets are on track to record net absorption levels like the pre-Covid five-year average with a potential upside next year, clearly outlining the resilience amid India’s dominance as the outsourcing and offshoring hub of the world and its innovation ecosystem creating new office demand. The turnaround in the residential sector has been nothing short of remarkable, with the sector poised to surpass decadal highs in apartment sales numbers. India’s warehousing and light manufacturing sector is expected to cross 40 million sqft in space demand in 2022, the highest ever,” observed Samantak Das, chief economist and head of research and REIS, India, JLL.
The JLL report observed that the residential segment has witnessed the fastest recovery with annual sales in 2022 expected to surpass 2,00,000 units, the highest in over a decade and nearing the 2010 sales of 2,16,762 units. Quarterly residential sales were over 50,000 units in each of the first three quarters of 2022. The report highlights that as incomes get adversely impacted by inflationary pressures and global headwinds, the affordability synergy prevailing in the last six months has been challenged. While affordability is likely to be impacted, the slowing momentum looks to be temporary with the country’s focus on economic growth along with the likely easing of inflationary pressures.
JLL report pointed out that the trend of launching plotted developments and independent floors is expected to grow with buyer preferences more inclined toward such products. Developers also get the advantages of faster execution and quick inventory liquidation with such products. Apart from the affordable and mid-segment, the traction is expected to take place in the premium segment as well, backed by launches by established developers in prime locations.
Similarly, as per the CRISIL report, though the demand will be below the pre-pandemic high of 42 million square feet (msf) in fiscal 2020, it would be within sniffing distance of the fiscal 2019 mark of 34 msf. As per CRISIL while the global recessionary headwinds and slower hiring in technology may lead to a possible deferment of leasing plans, thereby subduing demand growth in the next two quarters, the strength of the Indian economy and competitiveness of commercial real estate will keep the demand drivers intact. As per CRISIL, the credit profiles of commercial realtors will remain healthy in the milieu, backed by adequate leverage.
“After gathering pace in the first half of this fiscal, office leasing will fall back temporarily in the second half. Next fiscal, leasing growth will be supported by three factors. One, the IT and ITeS sector, which accounts for 45 per cent of India’s office leasing space, will continue to witness low single digit employee addition in the current and the next fiscal. Physical occupancy at offices across sectors will increase from 30-50 per cent at present. The Indian economy will also remain resilient and sectors such as BFSI, consulting, engineering, pharma, and e-commerce — accounting for 30 per cent of India’s office area — will add office space,” remarked Anand Kulkarni, director, CRISIL Ratings.
Experts believe that the year 2022 has already witnessed a healthy demand and are quite confident that it will continue in the near future amid healthy economic growth. “The market did recover as the year went along due to a boost in the consumer sentiments on the back of favourable government policies, the necessity for owning a home during times of unprecedented uncertainty, overall improvement in the job market, and all-time low home loan interest rates earlier supporting the residential market recovery. The previously investor-driven realty sector strongly evolved towards an end-user market. As fragility persisted in other financial assets, particularly stocks, real estate is considered a viable alternative for investors and will continue to be a safe investment in the long-term,” said Ramani Sastri, chairman and MD, Sterling Developers Private Limited.
There is also a possibility that the co-working space will also witness growth in 2023 due to the trend towards greater flexibility as the pandemic has reinforced the need for agility. “Flexible spaces are becoming mainstream now and hence co-working companies have seen a massive spike in the number of enquiries this year from across the clientele spectrum—large enterprises, MNCs, corporates, unicorns, start-ups and individuals amongst others. There is continued demand by large enterprises with customised workspace design requirements, preference for satellite offices, preventive health strategy by businesses and enhanced focus on technology adoption amongst others. Companies have realized that employees are their greatest asset and they must take cognizance of their needs and preferences,” observed Manas Mehrotra, founder, 315Work Avenue.
Many experts pointed out that a change in lifestyle will also drive the demand for premium properties in 2023. “The emphasis now is to equate luxury dwelling with quality of life and people are prepared to spend to get the best that life has to offer. Today, people feel the inherent need to make progressive lifestyle changes to lead a more balanced and healthy life. Buyers are looking at luxury projects that are independent in gated communities with unique architecture. The location of the project is also playing a key role, along with exclusivity, and, hence, destinations with a scenic locale and with experiences within the home and community – all of which are highly demanded by the buyers,” said Lincoln Bennet Rodrigues, chairman and founder, The Bennet and Bernard Company, that specialises in luxury themed homes in Goa.
Experts also anticipate a sustained demand for housing in 2023 that will be driven by a growing requirement for homes with more space and practical amenities, to accommodate the post pandemic lifestyle. “With several corporates reverting to the work from office business model and with people increasingly visiting malls and shopping complexes, the outlook for the leasing and retail businesses is also promising. We expect the basics such as cost and availability of capital, leasing activity, property prices, etc. to stabilise in the coming year. Overall, the sentiment is positive with growth being driven primarily by increased demand for housing, well supported by office and retail spaces. The hospitality sector is also expected to see an increase in occupancy, increased average room rates, and better F and B performances, due to leisure and business travel attaining pre-pandemic levels,” pointed out Pavitra Shankar, managing director, Brigade Enterprises.