The real estate sector is among the most recognized sectors worldwide. It comprises four sub-sectors – commercial, retail, hospitality, and housing. This sector’s expansion is accompanied by the growth in the corporate surroundings and the rising demand for office space.

Despite the short-term disruptions, India’s commercial real estate sector continues to attract interest from investors.

The year 2020 had reflections of both COVID-19 pandemics related disruptions in the beginning and the revival of repressed demand in the latter part of the year.  A lot happened during the year, which modified the natural way of doing business, especially impacting the real estate sector. The pillars of India’s growth, i.e. consumption, investment and exports, were all slowing down.

The first quarter of the year observed a complete halt of activities from March 2020, which caused subsequent disruptions in the economy. There was an absolute shutdown of the real estate industry’s activities, ensuring that sales plummeted to near inconsequential levels in Q2 2020.

As India’s COVID infection rate is reducing the Indian economy is on its way to recovery. The GDP contraction was relatively muted at 7% in July-September 2020 after falling steeply by a sharp 24% in April-June 2020.

India Real Estate(July-December 2020) Report

The latest report by Knight Frank, India Real Estate H2 2020, states that new completions were recorded in July – December 2020 period at 17.2 mn sq ft. In contrast, in the top eight cities, the office market recorded 22.2 mn sq ft transactions for the same aforesaid period.

The year started on a great note, with office leasing attaining 96% of the quarterly average in Q1 2020. However, the government’s lockdown led to economic inactivity and a steep fall in office leasing activities in Q2 2020.

Reverting to normality, gross leasing was revived to 31% in Q3 2020, eventually gushing to a mind-blowing 115% in Q4 2020.

The report states that during H2 2020, the home sales in India’s top eight cities were 94,997 units. As the country shifted towards normality, residential sales reached almost 54% with 33,403 units during Q3 2020 and recovered to 61,593 units during Q4 2020, almost 100% of pre-COVID levels.

During H2 2020, approximately 57% of the total sales were made up of homes priced over INR 50 lakhs. While new home launches were lower by 23% YoY in H2 2020, Q4 2020 observed significant growth of 77% QoQ.

Office leasing

• Office leasing activity in Q4 2020 recorded 1.63 mn sq m (17.5 mn sq ft), which was 271% higher than the earlier quarter.

• With transaction volumes developing at 8% YoY to 7.5 mn sq ft, the Bengaluru office market during H2 2020accounted for over a third of the transactions. It was the only market that registered growth on a YoY basis. Almost 33% of the total space transacted in Bengaluru was pre-committed by global technology giants such as Google and Amazon during the period.

• Despite the volatility experienced in 2020, average office rents in Bengaluru, Chennai and Hyderabad maintained 2019 levels.

•  For the BFSI and Information Technology sectors during H2 2020, the sectoral share of transactions remained relatively unaffected. Approximately 33% of the area transacted by BFSI sector companies took place in Hyderabad.  Concurrently, Bengaluru accounted for the highest share of the transactions performed by Information Technology, Co-working and Manufacturing sector companies at 35%, 45% and 39%, respectively.

• The transactions declared by the Other Services sector (18%) fell marginally in H2 2020 compared to 2020. The co-working (10%) segment remained stable throughout the same period.

Office supply

• Novel office completions in 2020 dropped by 42% YoY to 35.5 mn sq ft. Half-yearly growth figures for new completions declined by 54% YoY to 17.2 mn sq ft.

• In Q4 2020, new completions grew by 41% QoQ to 10 mn sq ft than Q3 2020.

• Bengaluru and Hyderabad markets saw the most supply online in H2 2020, accounting for 60% of 17.2 mn sq ft.

Source: Knight Frank Research

Bengaluru Office Market Report:

• In 2019, the Bengaluru office market had a record year when transaction activity scaled an all-time high of 1.42 mn sq m (15.25 mn sq ft). Capturing 25% of the India office market’s transaction share, Bengaluru was on course to scale a new peak in 2020.

• The most recent Q4 2020 has been a spectacular period for the Bengaluru office market. It records 6.4 mn sq ft of gross transactions which is far ahead of the Q3 2020 performance. This quarter turned out to be much better than the same quarter last year and exceeded the cumulative performance of all the first three quarters of 2020.

• Several factors played a role in enabling this stupendous market performance in Q4 2020. Firstly, there was pent-up demand from occupiers who had put their space take up plans on hold before this year. Secondly, the office space sign-ups have been from global technology majors and other large corporations taking a planned, long-term view on their office occupancy plans. Pre-commitment activity remained powerful with 2.47 mn sq ft of space being used up in Q4 2020.

• With gradual relaxation in Q3 2020 technology-driven enterprises actively began scouting for office spaces in line with being delivered.  In Q4 2020, 4.35 mn sq ft of new office space, 307% QoQ higher, was delivered – making it the best quarter in 2020. On an annual basis, new completions were lower by 41% YoY in 2020.

          Source: Knight Frank Research

India Real Estate Market Monitor 2020

Despite the hurdles posed by the COVID-19 pandemic, the Indian real estate market recalibrated and witnessed a rebound from the last quarter of 2020. This infographic aims to recap key trends that shaped the RE segments in Q4 2020 and how 2021 could fare.

Office: A gradual improvement in leasing sentiments & supply addition; overall office leasing momentum to witness an uptick in 2021.

I&L: A significant rebound in leasing witnessed; strong recovery expected within H1 2021 itself.

Retail: Space take-up improved on a q-o-q basis; the flexibility to be key to success in future.

Residential: Strong rebound in sales; developer incentives, supportive policies and attractive mortgage regime could sustain momentum in 2021.

RE Investments: RE capital flows upon a yo-y basis; investment activity expected to pick up pace as investors evaluate opportunistic deals.

Source: CBRE

Final Words:

2020 was an unprecedented year that saw huge instability, demand destruction and uncertainties due to the COVID pandemic. We are beginning 2021 with lingering ambiguities around the pandemic.

With the vaccine development, there is a lot to look forward to in the Indian market.  2021 will be a year of vigilant optimism and rebound in business and economic activities. At Hidecor, we are prepared to welcome you back to the new normal with utmost safety and taking all precautionary measures.