India real estate: the Indian real estate market will experience a strong rebound: Shishir Baijal CMD Knight Frank India

India is expected to see a strong rebound in demand in the residential, commercial and warehousing segments provided the Omicron spread is not severe, said Shishir Baijal CMD Knight Frank India. He spoke to ET about the recovery in real estate asset classes and the reach it offers to investors. Excerpts …

What are the headwinds that real estate is currently facing, other than the pandemic?
After the global financial crisis (GFC), investment in Indian real estate declined 71% in Q1-Q3 in 2009 compared to the same period in 2008, and home markets in major cities that had been booming in the summer of 2006, were clearly in distress. GFC has had an equal impact on the commercial and residential segments. However, the post GFC recovery for the commercial office segment has been steady, peaking at 60 million square feet in 2019. The residential segment experienced a brief period of recovery from 2009 to 2012, after which, for many reasons. , the segment experienced a prolonged downturn. . Residential sales only started to increase in the second half of 2020. A strong recovery was observed following the pandemic and due to the rationalization of supply, a low interest rate regime, improved accessibility, demand stimulus measures by some states, and a definite shift in the feelings of buyers who prefer physical assets. Commercial real estate (CRE), in the same period of the pandemic has struggled with periodic disruption due to recurring waves of COVID-19. That said, with strong growth in hiring, the inherent demand for office space remains strong.

The fundamental headwind today is the uncertainty surrounding the spread of Omicron, the new variant of COVID, as it has the potential to create another round of disruption. However, lessons learned from previous blockages will help us better prepare for any looming challenges that arise. If we can meet the challenges of the pandemic, Indian real estate across all asset classes will experience strong momentum in both demand and supply. It is the sentiment and fear of the pandemic that is hurting real estate sentiment in all segments of the country.

Give us an idea of ​​how the real estate category has evolved. How do you think it will behave in 2022?
The Indian office market is expected to recover soon, driven by record hires and expansion in the IT sector. Based on the hiring trend of the past 18 months, additional demand for office space by the top 5 IT companies is expected to reach nearly 1.08 million m² (11.67 million square feet) as of over the next two years, once the offices are fully open. and the WFH gradually decreases.

In an uncertain environment, occupants prefer to maintain flexibility in their commitment to office spaces. This has led to the growth of managed spaces or the coworking segment.

The pandemic period has also seen an increase in e-commerce and computer-based businesses. As a result, the segment is expected to register an increase in demand for real estate both in terms of front office space as well as warehouse space across the country.

India is expected to see a strong rebound in demand in the residential, commercial and warehousing segments provided the Omicron gap is not severe. India’s top 5 IT companies are said to have hired around 260,000 new employees between April 2020 and September 2021. The constant occupation of space by the IT industry continues as global and national companies have purchased large office space in the US. in recent months, signaling a return in rental dynamics.

Is the growth of the residential segment sustainable?

The residential sector is experiencing a strong rebound after the pandemic crisis. Residential sales in the top 8 cities have rebounded to near pre-COVID levels. Demand for housing has improved with low interest rates and falling house prices. Stimulus measures provided by various state governments also boosted sales. It is important to note that during the pandemic, people felt the need for better and larger housing, which supported improving affordability due to a demand stimulus such as mortgage rates. low, stable prices and government actions in some states.

How do you think the Indian real estate market is positioned in terms of prices, valuation and returns allowing investors to park their money?

As a stable asset class with the potential for capital growth, Indian commercial real estate offers higher returns compared to other investment alternatives, including sovereign debt. The commercial real estate market is at a stage of growth where contractual rent increases are typically around 5% per year. This gives investors good potential for capital appreciation given the strength of underlying demand for commercial real estate. For the residential sector, supply reforms over the past 5 years, including RERA and demonetization, the risk associated with investing in residential properties under construction has eased considerably.

The excess liquidity in the system and low interest rates make Indian real estate attractive to institutional investors. There would also be significant interest in income producing assets such as office and storage.

What are your plans for Knight Frank for the next phase of growth? How are you dealing in these uncertain times?
For Knight Frank, the focus has always been on people and that will continue for years to come. Our main focus will remain commercial real estate. We see tremendous reach in property management, office rental, appraisal and industrial services. Knight Frank is also focused on providing ESG and wellness services to our clients as we witness a global movement to become ESG compliant, safe and energy efficient. Investors as well as end users have significantly increased their focus on ESG.

What sectors in India are you passionate about in terms of growth potential in 2022?
Commercial real estate has grown steadily so far and the performance of REITs is proof of that. The industry and warehousing segment is also attracting interest from existing funds to further develop their portfolio in the country. While the office will continue to remain a dominant sector, investments in the residential, industrial and warehousing sectors are expected to strengthen in 2022 thanks to strong business fundamentals. Visibility and income stability, attractive valuations and identification of black horses will underline the investment ethic in 2022.