Graph & Analysis

Bangalore residential real estate performance in 2023 sustained the previous year’s momentum where it had made a remarkable recovery post COVID-19. Bangalore remained as one the strongest markets in India with ~15% share of new launches in 2023. The city saw a supply of around 58,000 units, a 7% increase Y-o-Y and absorption of around 65,400 units with 12% increase Y-o-Y. The unsold inventory stood at 54,000 marking 15% decrease Y-o-Y. Increased sales coupled with sustained launches led to a decrease in the overhang period from 11 months in 2022 to 10 months in 2023.

Bangalore North (32%) micro market has emerged as the top performer followed by Whitefield (20%), Sarjapur Road (20%) and Hosur Road (15%). In terms of absorption the micro markets which performed the best were Sarjapur Road (23%) and Whitefield (20%), followed by Bangalore North (13%) and Hosur Road (13%).

Sarjapur Road and Hosur Road witnessed maximum traction and together saw an absorption of 23,300 units; Thus, having the least overhang period (6 to 7 months) among the other micro-markets of Bangalore. Completion of Namma Metro Phase-2 (R V Road – Bommasandra) boosted residential real estate developments towards this catchment. Specific Hosur Road Micro Market has witnessed a sharp 40% increase Y-o-Y in supply followed by Whitfield & North Bangalore Micro-markets.

North Bangalore has witnessed 18,600 units launched with an 18% increase Y-o-Y and over 8,200 units were sold. Proximity to the international airport, increasing economic activity, improved social infrastructure and under-construction of Namma Metro (Blue line) along Bellay Road has triggered investor preferences towards this quadrant of the city.

Whitefield saw a supply of 15,000 units with an 11% increase Y-o-Y and absorption of 20,400 units. In Whitefield alone 12,900 units were absorbed, driven mainly by the IT professionals. Purple line metro’s full operation gave an additional boost in 2023.

Price-Segments: The highest share of launches was seen in the Mid- segment (46%) segment, followed by High-end (30%) and Premium (11%) segments, indicating a rising economic profile of the city, and changing preferences for premium homes. Around 5,200 premium units and 1,300 luxury units were sold in 2023, the highest ever seen.

Outlook: With the robust economy and infrastructure developments, the residential real estate outlook for Bangalore in 2024 is positive. The city is expected to witness a ~7-8% further surge in supply and demand. North Bangalore and Hosur Road Micro-Markets are expected to lead the market with anticipated operation of Metro-line connectivity in these locations. Also, rising demand for luxury and high-end homes will result in the development of high-end specification & quality large scale projects with lifestyle amenities.

• Co-Working spaces started to emerge globally in the early 2000s and around 2005 – 08 in India. Until the year 2020, the occupier base for Co-Working spaces was confined to small businesses, freelancers, or start-ups. Looking at the advantages like ease to expand, consolidate and working from any location, even large corporates (MNCs & companies with 100+ employees) occupy a significant share in the Co-Working office market space today. Microsoft, Facebook, and IBM are a few of the top companies to have occupied space in Co-Working offices.
• In India, especially post 2021, Co-Working spaces have rapidly emerged as a vital player in the commercial real estate sector. Demand from corporates, start-ups and entrepreneurs has resulted in a huge jump in the Co-Working share in total office leasing which increased from 8% in 2017 to 20% in 2023.
• As of January 2024, the estimated number of Co-Working seats in India are around 7 Lakh seats and around 3.5 Lakh seats are expected to come up in next 2 years. The top 8 cities, namely Mumbai, Delhi NCR, Chennai, Kolkata, Bangalore, Hyderabad, Pune and Ahmedabad, account for 94% of the seats. The Co-Working footprint is also rapidly picking up in other cities such as Jaipur, Kochi, Coimbatore, Nagpur, and Surat (about 5% of Total), and likely to reach 7-9% in the next two years.
• Given the opportunities in the sector, large-scale investments are being made in this space. Between 2020 to 2023, Co-Working operators raised USD 740 million in India. Co-Working operators are utilizing the funds for scaling up further, both in terms of geography as well as technological innovations.
• The flexibility combined with unhindered amenities and a community driven ecosystem are main attractions to the occupiers of Co-Working space. Additionally, the decision of businesses to ask employees to return to the office has spiked the demand for co-working spaces in recent times. Co-Working spaces are gaining popularity among businesses in India, with demand doubling in the past four years and expected to grow multifold in the coming years.

The India residential real estate market had surpassed the pre-COVID levels in 2022. Despite the global headwinds and anticipated impact of monetary tightening, the year 2023 was yet another remarkable one as both supply and absorption sustained the previous year’s momentum. And had witnessed stable absorption with over 4,50,600 units and a marginal 2% YoY growth in supply of over 3,77,300 units. Also, the expected time to liquidate the inventory (Overhang) reduced to 12 months in 2023 from 13 months in 2022.

Supply: The top 3 cities that contributed the most to the annual launches were Mumbai (30%), Hyderabad (20%), and Pune (19%), together accounting for 69% of the total supply. Mumbai launched over 1,15,000 units in 2023, followed by Hyderabad with over 75,000 units, and Pune with over 73,500 units. Bengaluru and Delhi also launched over 58,000 units and 28,100 units respectively.

Absorption: The top 3 cities that contributed the most to the annual sales were Mumbai (34%), Pune (19%), and Hyderabad (15%), together accounting for 68% of the total sales. Mumbai moved up to the top position with more than 154,000 units sold in 2023, followed by Pune with over 86,000 units, and Hyderabad with over 69,000 units. Bengaluru and Delhi also recorded healthy sales of over 65,400 and 48,500 units respectively.

Unsold Inventory: A marginal decrease of 6% from the previous year was seen in the stock. The top 3 cities that had the most unsold inventory were Mumbai (33%), Hyderabad (22%), and Pune (14%), together accounting for 69% of the total stock. Mumbai had over 1,51,000 unsold units in 2023, followed by Hyderabad with over 1,02,000 units, and Pune with over 64,500 units. Kolkata and Chennai had the lowest unsold inventory of around 20,200 units and 20,600 units respectively.

Overhang: Overhang period indicates the time expected in months to liquidate the unsold stock. In 2023 the three cities with least expected overhang were Pune (9) and Bengaluru (10). Increased sales coupled with sustained launches made these markets stronger than the others in the country. However, high amount of supply as compared to absorption led to highest overhang in Hyderabad (18).

Outlook: Despite various challenges the country witnessed a great traction in the residential market during 2022 and 2023. This trend is likely to remain the same in 2024. An expected 7% growth in supply and 6% growth in sales is foreseen. Bengaluru likely to remain the most promising market in the future. Pune might emerge as the next growth centre of residential real estate in the country as it is set to become another large IT hub of India.

• A ‘Second Home’ is a secondary dwelling, other than the owner’s principal residence. A second home can be a vacation, or a holiday home located in the tourist spot, a weekend home, or a farmhouse – located in proximity to one’s primary residence or an ancestral home, in a different city.
• A vacation home or a holiday home is defined as a second home located in a prominent tourist spot. The owner’s use it primarily for leisure or recreation and capital value appreciation. Since 2015, the vacation home market in India has witnessed entry of reputed developers and organized operators in short-term rental space. The product has evolved today significantly in terms of design as well as the services offered. Further, advancements in technology have catalysed both the sale as well as renting out of the vacation home.
• Today, a vacation home has evolved into a vacation rental home which is not only a lifestyle product but also an investment product. Vacation rental homes are villas or apartment units that are purpose-built and are semi or fully furnished, with an operator managing the unit as well as assisting for short-term rental.
• Globally and in India, tourist destinations such as beach locations, tea and coffee estates, vineyards and hill stations are gaining momentum for the development of vacation home projects. Proximity to a major city and connectivity (presence of an airport) are also pivotal for vacation home projects.
• Locations preferred for vacation rental homes in India:
  • Goa started witnessing developments of vacation homes since the late 2000s. Goa, on account of its connectivity, beaches, hospitality infrastructure, tourist footfalls, favorable regulations has always been a preferred location to purchase a vacation home.
  • Locations of Alibaug, Lonavala – Khandala, and Mahabaleshwar - Panchgani are amongst the most preferred locations catering to the people of Mumbai and Rishikesh, Dehradun and Mussoorie were preferred in the north region.
  • With Himachal Pradesh easing regulations in the year 2015 with regards to purchase of lands by non-domicile, vacation rental home developments in Shimla and Kasauli gained momentum. Emerging now are locations of Ranikhet and Haldwani in Uttarakhand in North
  • In the south, locations of Ooty – Coonoor and Kotagiri started witnessing early developments of vacation rental homes as it was one of the preferred locations by tourists and conducive regulations for purchase of units. With Karnataka repealing 79 A/B Land Act, regions of Malnad – Coorg, Chikmagalur and Sakleshpur are witnessing increased developments. Other preferred locations in south are Wayanad in Kerala and Kodaikanal in Tamil Nadu.
  • In terms of locations, Goa, Shimla, and Kasauli will continue to witness highest activity and will attract buyers from all the states of India. Connectivity required tourist infrastructure, high tourist footfalls and conducive weather are some of the key reasons for the high preference for these locations. Other locations of Alibaug, Lonavala, Malnad and Uttarakhand will continue to attract buyers from large cities located within 5 Hour driving distance. Locations of Wayand in Kerala, Nashik, Karjat in Maharashtra are likely to witness entry of organized players.
• The product is in the evolving phase from all perspectives: market, product design, technology, and operations. Flexibility to work from home, advancements in technology and recurring returns on investment are likely to drive the growth of this product type in the coming years.

Organized warehousing is 7 to 10 years old story in India. Currently it is growing at brisk rate between 15% and 20 % annually for next 3 to 5 years. It is currently in growth phase and moving into matured stage. Growth of e-commerce industry firstly fueled the development of large warehousing in peripheral regions of Tier 1 cities now it is also making way deep in Tier 2 and 3 locations of India. In addition, the product type has also evolved significantly- apart from large warehousing spaces, urban logistic space (smaller spaces within cities) is witnessing high growth. This segment will keep evolving with growth of e-commerce industry and advancement of technology.

Datacenters have been in center stage since 2018. Post outbreak of COVID, the attention towards this segment has increased multifolds. There are multiple reasons for growth of datacenter in India including Growing internet and mobile broadband penetration, surge in data usage, increased adoption of cloud service and proactive government policies on data security in India. Industry capacity to grow about two times to ~ 1,200 MW by 2025 in India. Currently, this segment is registering a CAGR of 22%. Datacenter is in growth phase and will keep growing in future as well. It is expected to remain in this phase for next 7 to 10 years.

Co-Working has entered in highest growth period in the last 12 months. The demand of managed offices/ co-working/ flexible space is expected to grow between 20% and 30% (in terms of seat absorption) owing to companies adopting hybrid model of work. In 2021, Co-working accounted for 15% of the total office space absorption. In 2022, Co-working is accounting between 18% and 22% of the total office absorption and expected to account over 35% of total office pie by 2025. Therefore, this sector will be the focal point in office space in coming years.

Co-Living sector witnessed good growth pre pandemic period. However, it has gone through a tough period during pandemic as expected and many operators have shelved the business or bought over by larger players. Most of the Co-Living facilities have occupancy over 80% in major cities and operators have started signing additional space for future growth. This sector has crossed the initial stage and is entering the growth phase. In the next 5 years, this sector is likely to reach its peak.

There are other newer products namely flatted factories and BTR (Built-To-Rent). They are all in the nascent phase and the product has to be aligned to the market requirements and is yet to be tested in real environment before it witnesses growth.

Office has witnessed good traction in H2 2021; leasing traction in Q1 2022 is higher compared to the last 2 years. Despite, IT/ITeS sector performing extremely well supported by hirings, net absorption of office space is less than 50% as compared to absorption in the year 2019. The current leasing activity is lesser compared to hiring activities mainly due to change in working behavior of the workforce. We expect the ratio of actual hire to physical space will drop considering hybrid model is the future. Office sector is expected to grow at slower pace in coming years compared to 2015-19 cycle.

Retail is at the cusp of recovery phase; this sector has been in slowdown phase for many years now largely on account of penetration of e-commerce. Retail real estate is expected to keep evolving with technology improvements. However, we expect it to start doing well in short term onwards. Even though, demand size has been shifted here compared to expectation in last one decade.

Hospitality sector overall is expected to be entering in expansion phase with rise in affordability and changing consumer behavior. However, different product namely leisure and business products will perform differently. We are expecting many new developments in leisure segment across different parts of the country.

Residential has entered its dream run phase. It has been performing very well since Q4 2020 and expected to be in expansion mode for the next 3-5 years more. Different residential products are in demand on account of improved affordability. Yes, we are living in high inflation phase and cost of living is rising at brisk rate, we are expecting income growth is dominant sector will also remain healthy to keep demand of this segment going.

• The e-commerce sector will drive bulk of the volume, as the accelerated growth trajectory that the pandemic pushed the sector toward is expected to sustain. Most consumers that were forced to shop online will continue to do so and the existing brick-and-mortar stores will also look to leverage online channels to push sales. The 3PL sector will sustain market share as e-commerce and other sectors increasingly outsource their warehousing requirements to specialists in the field.
• Indian e-commerce market is on the cusp of its next phase of growth with Indian business giants such as the Reliance and Tata groups have entered in this field along with global players including Amazon and Walmart to capture this growing market. A growing economy like India with the second largest population in the world still holds massive potential for its warehousing market which will fructify over the next few years.
• It is estimated that the e-commerce sector will consume the most space in the next five year (2021-2026). Similarly, 3PL and Other Sector companies are expected to take up more space in the next five years compared to the preceding period. These three occupier groups are expected to account for almost 90% of the total transacted space in the next five years.

• The eight prime markets of India held an estimated 252 mn sqft of warehousing stock at the end of H1 CY 2021. The Mumbai & Delhi NCR market accounts for 40% of this stock. The larger warehousing markets of Mumbai and Delhi NCR have a significantly lower proportion of Grade A warehouses as they are much older markets and the bulk of their stock had been built before the demand for Grade A warehousing gathered momentum. Bangalore, Pune, and Chennai have the higher levels of Grade A stock due to their primary demand base of ecommerce, auto and auto ancillary occupiers.
• Prominent cities or Tier 2 markets that are witnessing increased warehousing developments are Guwahati, Coimbatore, Bhubaneshwar, Lucknow, Visakhapatnam, Kochi, Vapi and Surat. Annual demand in these markets have grown significantly; from a share of 10% in 2015 the absorption in these markets have grown to 20% of the total demand across top 8 markets in the year 2020. We expect this trend to continue, and tier 2 locations will have a share of 25% of the prime markets in next few years.
• Absorption is likely to grown between 18% and 22% annually for most of the markets. Rental escalations for Grade A space are expected to be between 4% and 6% and 3% to 5% for Grade B spaces in the coming three years.

• Modern Indian warehousing story started between 2005 and 2010 when logistics companies built the first Grade A warehouses in the country. A growing economy with a consumption base of over 1.35 bn people, made the Indian warehousing market a compelling investment proposition. Since last one decade, growth witnessed in the e-commerce and 3PL sectors caused warehousing demand to grow at a CAGR of 35% in the last 5 years.
• Currently, proportion between Grade A & Grade B warehousing spaces is 45% and 55% respectively. Since 2016, Grade A spaces have been growing at 30% and whereas Grade B facilities have witnessed CAGR of 12%. We are expecting going forward the CAGR gap between Grade A and Grade B to further widen as Grade A spaces offers opportunity in the secondary investment market.
• In addition to the attractive domestic consumption story, the Indian government's focus on manufacturing with the Make in India initiative and Production Linked Incentive (PLI) scheme among others, and with India being among the possible beneficiaries of the global companies looking to disperse manufacturing capacity across Asia, the sector is likely to see a surge in demand from different sectors.