Realty sector will be better or comparable to 2022: Knight Frank’s Rathi

Knight Frank India's Vivek Rathi essays the realty industry’s performance in past decade and his outlook for the space in 2023

Indian realty market is clearly on a rapid recovery mode, as the numbers show. Not only have sales of residential properties increased significantly, the number of new launches too reflect a greater buoyancy in the market, coming up. Likewise, retail leasing is also on a roll. Against this backdrop, Vivek Rathi, who heads research at property consultancy Knight Frank India, sat down with DH’s Shakshi Jain to essay the realty industry’s performance in the last decade and his outlook for the space in 2023, while also dwelling on the trends that are likely to dominate the sector this year.

Edited excerpts.

Please outline the journey of the residential realty market from its low point in 2014 to its upbeat performance in 2022.

The housing market was in a long downslide from 2014 to 2019, when volumes as well as prices of housing properties continued to come down or remained stable in most years. But reforms strengthened the structure of the industry and ensured that supply kept improving. When the pandemic struck, it became a big inflection point for all consumers of real estate, not limited to housing. In 2020 and 2021, when most people were confined to their homes, stability was a question mark. There were cases where people who were not the owners of property were not meted out the best treatment. All of this kind of created a shift in the way people think about homes, real estate, stability and permanence. So 2022 was conclusively the best year in the last 9 years, in terms of sales. For FY 2023 the numbers will be out in the next 3-4 weeks for most developers, many of whom are expected to report their best financial year ever.

Also Read | Karnataka property sales up 30% over pre-Covid levels

How has the commercial arm fared since the pandemic?

The office segment and the warehousing segment were on a strong foot before the pandemic. The commercial office space market in 2019 recorded its best year in terms of volume of transactions, almost 60 million square feet. When the pandemic struck the utilisation rate of these properties came down to sub-10% because of restricted mobility. As we started to come out of the pandemic, gradually with realisations setting in, in terms of the value propositions of commercial office space, it became clear that it is going to be a crucial element of any commercial activity. What this means is that since employees want flexibility, this will be a feature… which is what translates into a hybrid work culture.

What you had in 2022 is a remarkable improvement in the office space demand, compared to 2020 and 2021. After a decline in rentals in the preceding two years, in 2022 you saw almost 8-9% rent growth, which is a good growth compared to a benchmark of a contractual rent escalation which is generally at 5%.

What are some of the trends that you see dominating the property market in India this year ?

Mid and premium housing segments are likely to continue their lead because there is both the desire and the ability to purchase a house. On pricing, growth can moderate to 2-5% this year after a strong growth in 2022.

Also Read | Getting into real-estate investing with no money

From a commercial standpoint, most of the occupiers are now intending to prepare for their next leg of business growth even while maintaining agility or flexibility in their workspace plans. The best way they are finding to attend to this is by these flex workspaces. As a result in the last six months these coworking or flex space operators have taken up the highest share in their historical comparisons. So that is something that should remain as one big feature.

What is your outlook for the Indian realty industry in 2023 ?

In the housing sector we are expecting the sales momentum to continue this year. The volumes should sustain even while the growth rate moderates.

In the office space, there are certain headwinds coming in. The net-net of this is going to be the translation in terms of both the volume and rentals. It’ll really depend on how fast the global economy and mostly the US is able to come out of the recession fears. If that comes up early on, then we may have a better year or comparable year in 2023, as we had in 2022.