The Indian real estate industry has solidified its position as a key driver of the nation’s economic growth. Robust demand, diversified growth opportunities, and investor confidence have fuelled the sector’s sustained growth trajectory. A combination of factors, including urbanization and a stable interest rate regime, has fueled strong demand across residential and commercial real estate segments. The sector’s growth is driven by diverse real estate asset classes, offering opportunities for domestic and international investors.
The Indian real estate market has garnered significant investor interest due to its long-term growth prospects, favourable government policies, and improved economic conditions compared to the rest of the world. As the sector continues its upward trajectory, its maturity and enhanced transparency are facilitated by regulatory frameworks.
India’s commitment to economic stability and structural reforms has significantly enhanced its resilience, enabling it to navigate global challenges effectively. Amidst a challenging geopolitical scenario, India has emerged as a preferred destination for global businesses and a hotspot for real estate growth. Recent data underscores the market’s dynamism.
Investment Inflows Highlight Resilience
The year has been exemplary in terms of investment flows in the country. In 2024, India’s real estate market experienced a significant surge in equity capital inflows, reaching a new high of USD 8.9 billion in the first nine months of the year, reflecting a 46% year-on-year increase. This robust growth was primarily driven by a resurgence in capital deployment during the July-September quarter. Approximately 200 investment deals were recorded during this period, an increase from 151 deals in the same period in 2023.
The major gateway cities of Delhi-NCR, Mumbai, and Bengaluru accounted for over 63% of the total investment inflows, with Delhi-NCR leading the pack with a 26% share, amounting to roughly USD 2.3 billion. Meanwhile, equity capital inflows into tier-II and III cities reached around USD 600 million, with Ludhiana, Mohali, Tuticorin, Hubli, Coimbatore, and Indore collectively contributing to approximately 76% of these inflows.
In terms of sectors, land and development sites, along with the office sector, captured the largest share of investment, securing around 70% of the total inflows. The residential sector accounted for about 64% of land and development site investments, with the remainder directed towards mixed-use developments, warehousing, retail, and data centers. Additionally, residential, retail, and mixed-use sectors saw a notable rebound, securing a healthy share of the overall capital inflows in 2024.
Institutional and collective vehicle investors were pivotal, contributing around 40% of the overall capital inflows. Developer companies played a leading role, accounting for over 41% of the total investment. Domestic investors, predominantly developers, were the largest contributors, investing nearly USD 6 billion and capturing a 65% share of the overall capital inflows. Foreign investors, led by North American and Singaporean entities, contributed approximately USD 3.1 billion.
Metros and tier-I cities are expected to continue being the primary recipients of equity inflows; however, in view of SEBI’s SM REIT regulations, quality (but smaller) assets in tier-II locations would also offer a window of opportunity for investments. Adopting growth and controlling stake/buyout investment strategies signals the long-term commitment and confidence that investors instill in India’s RE market. Additionally, deal volumes picking pace indicates a wider array of assets gaining access to debt/equity funding.
Soaring Office Demand
2024 has been a remarkable year for the office sector, with leasing activity totalling 53.3 million sq. ft. from January to September. During the same period, 36.2 mn. sq. ft. of new office space was completed, with Bengaluru, Hyderabad, and Pune contributing 66% of the total supply. Global capability centres (GCCs) were a major driver, accounting for 38% of the leasing activity, particularly in Bengaluru (49%), Hyderabad, Pune, and Chennai.
This surge was primarily driven by the expansion of Global Capability Centres (GCCs), which accounted for 35-40% of total leasing activity. GCCs are increasingly moving to India due to its cost efficiency and a vast pool of highly skilled professionals. Additionally, India’s robust digital infrastructure and advancements in IT hubs ensure seamless operations for global companies, making it a reliable alternative to traditional business hubs in Europe and North America.
Cities like Bengaluru, Hyderabad, and Pune dominated the supply pipeline, contributing 66% of new office spaces. Interestingly, domestic companies were strong drivers of office space demand, accounting for approximately 42% of total absorption. Indian technology firms, flexible space operators, and banks were the primary contributors.
Technology companies, particularly in Bengaluru, led the charge with a 24% share of overall leasing. Other key sectors like BFSI, E&M, flexible space providers, and life sciences also significantly contributed to demand. A notable trend was the rise of green-certified buildings, aligning with the growing emphasis on sustainability. Government initiatives like Make in India and the development of IT hubs have played a crucial role in attracting foreign investments and creating demand for premium office spaces.
Looking ahead, office absorption in India is expected to surpass 70 million square feet in 2024, with GCC leasing activity anticipated to make up 35-40% of the total demand. The market remains strong, fuelled by both domestic and global demand, as well as the increasing emphasis on quality, sustainability, and flexibility in office spaces.
As employee experience gains prominence, occupiers would continue prioritising ‘flight to quality’ relocations and upgrades. Corporates are likely to favour modern, green-certified office developments driven by net-zero goals. This is expected to drive demand for high-quality, sustainable spaces within integrated tech parks, shaping the future of India’s office market with a focus on well-being and flexibility.
Smart Technologies and Global Brands Lead The Way For Retail Segment
In the first nine months of 2024, India’s retail leasing market demonstrated remarkable resilience, absorbing approximately 4.5 million square feet of retail space. The fashion and apparel segment remained a key driver, contributing 38% to the total absorption. This was fueled by the strong demand for mid-range, value fashion, and athleisure brands catering to a wide range of consumers.
The Food & Beverage sector, particularly coffee shops and casual dining restaurants, also made a significant contribution to the retail leasing market, accounting for around 11% of the total absorption. This surge in demand highlights the growing trend of social dining and the increasing preference for experiences that combine food, leisure, and socialization.
Although there has been a realignment in retail supply timelines, India’s Grade A mall supply is projected to reach between 1 and 1.5 mn. sq. ft. in 2024. This growth is driven by the sustained demand for premium retail spaces, underscored by the expanding spending capacity of the affluent consumer segment.
Luxury brands, in particular, accounted for approximately 6% of total retail leasing activity in 2024, reflecting the ongoing growth of India’s luxury retail market. Notably, global retailers have recently entered the Indian market, underscoring the country’s enduring appeal as a prime destination for international brands.
The direct-to-consumer (D2C) sector has also witnessed substantial growth in retail leasing, with more than 600 new brands entering the Indian market since 2016. This is a testament to the evolving retail landscape, as D2C brands capitalize on the opportunities presented by India’s growing digital and physical retail ecosystems. Furthermore, the integration of community spaces and smart technologies into shopping malls has significantly enhanced their appeal, allowing them to attract a broader, more diverse customer base.
This trend is expected to accelerate as retailers seek to create immersive and engaging shopping experiences for the modern consumer. Growing demand from newer categories amidst limited space availability is likely to drive retail rental increments; the rise is expected to be divergent, with factors such as developer profile, location, and mall positioning playing a critical role in rental escalations.
Growth In Logistics Segment
India’s industrial and logistics (I&L) leasing activity has demonstrated remarkable growth, reaching 27.5 million. sq. ft. in the first nine months of 2024. The regions of Delhi-NCR, Kolkata, and Bengaluru collectively accounted for approximately 61% of the total space take-up.
Third-party logistics (3PL) players dominated the market, securing a substantial share of around 39%, as businesses increasingly outsourced their storage and delivery operations to reduce lead times and optimize operational costs. Engineering & manufacturing (E&M) and retail sectors also played significant roles, contributing to an additional 30% of total warehousing space absorption between January and September 2024.
The industrial and logistics markets in India’s top eight tier-II cities remained resilient, with Chandigarh, Hosur, and Jaipur leading in both supply and absorption activity. These cities have increasingly become attractive for investors and occupiers seeking to expand beyond the major metropolitan areas, benefiting from improving infrastructure and rising disposable incomes.
Looking forward, warehousing leasing activity in key markets such as Delhi-NCR and Bengaluru is expected to accelerate, fuelled by an increase in new inquiries, the introduction of high-quality supply, and the finalization of pending transactions. As disposable incomes continue to rise and infrastructure development progresses, both investors and occupiers are projected to further expand into tier-II and tier-III cities. Chandigarh, Hosur, Jaipur, Lucknow, and Vizag are emerging as key markets with strong growth potential in the coming quarters.
Warehouse rentals are expected to continue increasing on an annualised basis in 2024. This would largely be driven by the premium commanded by upcoming investment-grade assets in prime locations, coupled with rising land and input costs. In select micro-markets witnessing sluggish occupier appetite, developers could offer incentives to aid transaction closures.
Source Homevior.in
