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2024 can be called the year of elections as nearly 50% of the world’s population voted during the year. Major events, such as the US presidential election and India’s general elections, coupled with escalating geopolitical tensions like the Russia-Ukraine conflict and the Israel-Hamas crisis, contributed to global economic uncertainty. Despite global headwinds, the Indian real estate sector remained buoyant on the back of robust economic performance and strong fundamentals.

Union Budget 2024-25 focused on holistic development

The Union Budget’s main goal was Viksit Bharat by 2047, focusing on– Farmers, Poor, Women, and Youth. INR 11.11 lakh crore was allocated for infrastructure development (3.4% of GDP) which is likely to infuse growth in the real estate sector.

The government also introduced measures to enhance disposable income by creating employment opportunities, improving skills, and reducing direct taxes, all of which are likely to provide further impetus to the real estate sector.Additionally, the budget witnessed several direct announcements to boost the demand for real estate assets across the country - A budget allocation of INR 10 lakh crore to develop one crore urban houses under PMAY, improve transparency in rental housing markets, digitization of land records, and reduction in stamp duty for women homebuyers. Sustainability also gained momentum through the government’s push for clean energy, which is expected to influence the real estate sector positively.

Office market gained momentum

The office market faced initial challenges in the first quarter of 2024, with moderate absorption and restricted new completions due to global economic uncertainty and ongoing geopolitical tensions between Russia and Ukraine.  However, the market rebounded significantly in Q2 2024, registering a quarterly increase of 27% in absorption and 15% in new completions. The growth momentum continued in Q3 2024 as well with an increase of 9% in absorption and 3% in new completions.

The first nine months of 2024 witnessed an absorption of 49 Mn sq ft, registering an increase of 18% over the same period a year earlier. Following the same trend, new completions increased by 8% during the same period stated above, reaching 36 Mn sq ft.

IT-ITeS sector continued to dominate leasing activity during the first nine months of 2024 with the BFSI and Flex Spaces also gaining traction. Southern cities (Bengaluru, Chennai, and Hyderabad) led both absorption and new completions on the back of rapid expansion in city boundaries.

Sustainability emerged as a key driver for office demand, with green-certified office buildings accounting for 86% of the total absorption in Q3 2024, up from 74% in the previous quarter. This trend can be attributed to the rental premium of 12-14% that green-certified buildings command over conventional office spaces.  

In a major policy announcement this year, SEBI allowed developers to list properties under the Small and Medium Real Estate Investment Trusts (SM REITs). This spurred developers to list their portfolios as the threshold for listing assets lowered and were set between INR 50 crore to INR 500 crore. This may ease liquidity in real estate and boost the participation of retail investors.

 E-commerce is reshaping warehousing and logistics sector

The warehousing & logistics sector witnessed robust absorption of 16.6 Mn sq ft in the first half of 2024, registering an increase of 8% over H1 2023 and 26% as compared to H1 2022. However, absorption declined by 26% when compared to H2 2023.

The sector is expected to surpass absorption levels of 2023 bolstered by robust institutional investments, Production-Linked Incentive (PLI) schemes, development of freight corridors, and a booming e-commerce industry.

Micro-markets like Bhiwandi and Navi Mumbai in Mumbai, along with Pune’s peripheral areas  saw heightened demand for warehouses during H1 2024. While weighted average rentals remained under pressure due to volatile market conditions, Chennai, Pune, Kolkata, and NCR still recorded annual rental growth in the range of 5%-30%. Rentals declined by 8%, 7%, and 5% in Bengaluru, Hyderabad, and Mumbai respectively. Moreover, the quick commerce segment gained significant traction in metro cities during 2024, driving demand for in-city warehousing and dark stores.

Steady retail leasing activity in 2024

Retail leasing remained steady throughout 2024, despite limited supply of Grade-A malls. Fashion, apparel, and entertainment segments led the absorption, propelled by increased consumption and easy financing options. The expansion of retail markets encouraged new foreign retailers to establish their presence in tier-1 cities, while established brands explored tier-2 and tier-3 cities, tapping into emerging markets and local talent pools.

Robust demand and restricted supply in 2024 pushed rentals northwards across the major cities in India. Rentals may further escalate in the future owing to the limited planned supply of grade-A retail spaces.

Housing sector continued its growth momentum

The Reserve Bank of India (RBI) maintained the repo rate at 6.5% throughout 2024, ensuring housing loan rates remained stable. Additionally, the RBI’s recent shift from its “Withdrawal of accommodation” stance to a neutral outlook signals a potential rate cut in the near future, which could attract hesitant buyers to the residential market.

The housing sector witnessed a slight dip in sales during the third quarter of 2024 as compared to the previous quarter. However, the demand-supply dynamics remain resilient as sales outpaced new launches in Q3 2024. Moreover, the last quarter of the year is expected to witness robust sales due to the festivals. Sales surpassing new supply during the year led to a significant reduction in unsold inventory. As a result, property prices peaked during the year.

Furthermore, listed developers expanded their portfolios in tier-2 cities, capitalizing on their brand value. The sector also witnessed a notable surge in affordable housing sales, driven by favourable government policies.

Investments revived despite a slow start

Foreign investors adopted a cautious approach amid geopolitical challenges, resulting in significantly low investments of USD 0.6 Bn in Q1 2024. However, investments saw a surge to USD 3.1 Bn in Q2 2024, followed by a sudden dip to USD 0.96 Bn in Q3 2024. Despite this volatility, investments in the first nine months of 2024 have already surpassed the total investments for 2023. Moreover, 9M 2024 received investments worth USD 4.61 Bn, an increase of 31% compared to the same period a year earlier.

The industrial and warehousing sector emerged as the frontrunner, accounting for 36% of the total investments in 9M 2024, followed by commercial assets such as office spaces, co-working hubs, retail, and hotels with a 33% share. While domestic investors maintained optimism, contributing 34% of the total investments, foreign investors dominated with a 58% share.

Affordability and mega infrastructure projects pushed growth in tier-2 cities

Rapid urbanization and improved connectivity with metro cities fueled growth in tier-2 cities. To leverage upon the potential of emerging markets and capitalize on relatively lower costs, several MNCs expanded their footprint to tier-2 cities. This fueled the demand for flexible spaces in non-metro areas, boosting the demand for office spaces.

In a nutshell, robust demand for office spaces along with an improved investment scenario boosted the growth prospects of the sector. As tier-2 cities witness traction, demand for real estate assets is likely to increase in the future.

Shrinivas Rao, FRICS, CEO, Vestian said, “The year 2024 was full of challenges and uncertainties, yet the Indian real estate sector remained resilient. While the government’s emphasis on infrastructure development and affordable housing fueled domestic demand, India’s robust economic performance lured foreign investors. All in all, the Indian real estate sector has been driven by an increase in domestic consumption and easy  financing options.”

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