News: Indian property sector's 2021 outlook resilient; office realty to lead revival-30-11-2020
According to the consultant, the Bengaluru office market is expected to experience a rise in office rentals in the next year while Mumbai and National Capital Region are expected to remain stable in rental values.
MUMBAI: The outlook for Indian real estate sector remains resilient in the year 2021 following the sluggish movement across segments including commercial and residential property market in most part of 2020, said property consultant Knight Frank India.
According to the consultant, the Bengaluru office market is expected to experience a rise in office rentals in the next year while Mumbai and National Capital Region are expected to remain stable in rental values. These trends indicate that despite a bleak period between April-June 2020, overall demand for office space could remain strong in the New Year.
For the main office markets of India, the positive trends are a draw out of the encouragement received in the second half of the year that saw office space demand making a comeback, albeit still short of pre-COVID periods.
Bengaluru, in particular, has the benefit of existing low vacancies that will enable absorption of much of the upcoming supply. The city also has the advantage of relatively lower rentals compared to global markets and a large talent pool that should help in quicker revival of this market as global economies move towards normalcy. According to the report, Asia- Pacific prime office rents are expected to decline between-3% to 0% in 2021.
“The year 2020 has been dominated by the pandemic which resulted in low activity in Q2 2020 (April – June) and segments across the Indian real estate sector remained subdued. However, with positive measures being taken up by the government and the RBI, we saw momentum resume in Q3 2020. The beleaguered residential sectors received a new lease of life during this period and demand saw an unprecedented surge. This has created a sense of optimism in the sector,” said Shishir Baijal, CMD, Knight Frank India.
He believes the office sector is also expecting to see a revival with economic activities opening up worldwide with news of the mass vaccine for COVID being only month’s away.
Knight Frank expects Asia-Pacific prime office rents to decline between -3% to 0% in 2021. In contrast, Bengaluru’s office market witnessed a surge in prime rents in 2021 whereas Mumbai and NCR office rentals remained stable in the same period.
Despite the rental decline, the prime grade office asset values are expected to remain relatively stable due to their more resilient lease profiles, and low-interest-rate environment.
The prices of prime residential markets in Indian cities including Mumbai, NCR, and Bengaluru are expected to remain stable in 2021. However, the re-opening of borders will also bring back high-net-worth foreign buyers who have mainly been absent this year.
The demand for warehousing remained relatively resilient this year, correcting only by 11% on-year, as compared to the 44% CAGR recorded from FY17 to FY20. Despite the ongoing pandemic, the Indian warehousing sector is expected to remain comparatively less impacted due to rising e-commerce demand which is expected to grow from $70 billion in FY19 to an estimated $160 billion by 2022.
With an increase in demand from e-commerce, India’s online retail growth is estimated at 13% on-year in 2020. In October 2020, the asking industrial rents for Mumbai, Delhi, and Bengaluru warehousing remained stable and are expected to remain unchanged for the year 2021.
In terms of Asia-Pacific capital market forecast, the commercial yields for Mumbai, NCR, and Bengaluru under the office and warehousing segment are expected to remain stable in 2021. In the APAC region industrial investment share of commercial transaction volumes increased by 50% in 2020 and is expected to continue to do well in 2021 as investors continue to jump on the e-commerce growth.
