Indian Real Estate Poised For a Decadal High Path

With India’s GDP having a potential to reach USD 10.3 trillion in a decade and  urban cities  requiring 78 million homes worth USD 906 billion in the next 10 years, Indian real estate has the potential to reach USD 1.5 trillion by 2034.

Providing an insight into the future of real estate in the next decade in India,  a recent report by Knight Frank India and CII reveals that the real estate sector is projected to grow to USD 1.5 trillion , constituting 10.5 percent of the total economic output , up from USD 482 billion , contributing 7.3 percent to the country’s GDP. Residential sector is set to lead this realty growth with a value of USD 906 billion, followed by office sector at USD 125 billion. Land for manufacturing activities is estimated to generate a value of USD 28 billion while warehousing is projected to yield revenues of USD 8.9 billion.

According to the report, India’s economic growth in the next decade will depend heavily on several factors, including a growing young population, bolstered domestic manufacturing, infrastructure development, and urban expansion. Under favourable conditions for these drivers and assuming an annual 2% depreciation of the INR to US$ exchange rate, India’s GDP could potentially reach US$ 10.3 trillion by 2034.

Residential Real Estate  

By the next decade India’s population is expected to surge to 1.55 billion  with  an estimated 42.5 percent  of the population residing in urban centres. As such, urban cities in India will require 78 million additional housing units between 2024-2034.

By 2034 it is estimated that a substantial portion of the population will be in the lower-middle and upper-middle-income brackets. Consequently, generating housing demand for the affordable segment, gradually transitioning towards the mid-segment . The proportion of HNI and UHNI house holds is expected to get tripled at 9 percent by 2034, in turn driving significant demand for luxury housing This surge in demand will have the potential to generate an additional market value output  of about USD 906 billion over the next decade.   

Share of households across different income groups

Source: World Economic Forum, Knight Frank Research

Commercial Real Estate 

In 2008, the top 8 cities in India cumulatively accounted for 278 mn sq ft office stock; which has now increased to 900+ mn sq ft. In the last few years. Tier 2 and 3 cities in India have also witnessed a rising demand and supply for office real estate in India. Factors such as business expansion, low costs, infrastructure development, rise of IT and the services industry, and the availability of talent are some of key drivers of growth in office stock in Tier 2 and 3 cities. These factors, along with increase in formal workforce in India, will further generate demand for adequate volume of office space in India.

To accommodate the promising economic activity and growth in formal employment, an estimated 2.7 billion sq ft of office space will be required by 2034 . This amounts to an additional requirement of 1.7 billion sq ft of office space in the next decade .The potential revenue generation from office real estate is estimated to be USD 125 billion in 2034.  Global Capability Centres (GCCs) rising to 2880 by 2034 ,have the potential to drive this growth . “Fueled by burgeoning wealth, robust consumer spending, infrastructural advancements, entrepreneurial fervour, and strategic initiatives like ‘Make in India’, the nation stands on the brink of a profound economic evolution. Real estate will be the corner stone of this transforative journey, growing to USD 1.5 trillion by 2034. What more, it will be a sustainable progress, anchored in resilience and adaptability”, says Ghulam Zia, Senior Executive Director-Research Advisory, Infrastructure and Valuation, Knight Frank India.

Warehousing

Driven by the strong correlation between economic growth and rising income levels, India’s warehousing market is projected to experience a potential demand of 111 million square feet by 2034, marking an increase of 42 million sq ft over the next decade, with a potential to generate  revenue of USD 8.9 billion during the upcoming decade.   The share of India’s manufacturing sector can potentially increase to 21.3% of the GDP. As of 2021, India has allocated 500,000 hectares of land for industrial purposes, encompassing 3,989 special economic zones, industrial parks, and estates. To accommodate the anticipated surge in manufacturing activities over the next decade, an estimated 2 million hectares of land will be required for industrial use in India, generating revenue potential of USD 28 billion by 2034. 

Retail

As per Knight Frank estimates, organized retail consumption is currently estimated to be at 4.6% of the total private consumption of individuals. This is significantly smaller when compared to developed markets such as the US, where retail consumption comprises 40% of the total private consumption of individuals. However, with growing income levels and the increasing propensity of households in India to consume, by 2034, when the size of the Indian economy is estimated to be USD 10.3 trn, the share of retail consumption is estimated to be 21% of the total private consumption. This quantum of consumption boost will support the entry and expansion of retailers in India and provide an impetus to the retail real estate both for the shopping malls and for the high streets. 

Private Equity in Real Estate

As India has strengthened  its reputation as an attractive investment destination , hence the flow of private equity into the real estate sector is expected to rise. Private equity investments in Indian real estate have constituted around 0.15% of the country’s Gross Domestic Product (GDP). With India’s GDP projected to reach USD 11.3 tn by 2034, the surge in private equity investments in the real estate sector is estimated to reach USD 14.9 bn by 2034, representing a Compound Annual Growth Rate (CAGR) of 17% between 2023 to 2034.Emerging sectors such as data centers, healthcare, hospitality, co-living, and co-working spaces present promising avenues for private equity investors, driving the growth narrative in India for the coming years. 

Growth Strategy For Next Decade 

Capitalizing on manpower  

India’s real estate sector is poised for a  significant growth, demanding a skilled workforce to enhance sectoral efficiency. With 63% of the population in the working-age category, there’s abundant potential to enhance productivity. However, the sector faces a shortage of skilled workers despite employing 70 million people, constituting 18% of the workforce. By 2030, the construction sector is expected to contribute USD 1 trillion to the economy’s USD 7 trillion output, necessitating an increase in employment to 100 million, mainly minimally skilled workers. Nonetheless, the evolving technological landscape highlights the need for skilled labour in real estate, presenting growth opportunities. This skill gap can be achieved through strengthening of training modules in institutes as per industry requirements, collaboration between academic institutions and private employers and by encouraging coursework and certification with professional bodies.

Urban housing push 

India’s housing deficit, exacerbated by rapid urbanization, disproportionately affects lower-income groups, hindering affordable options. Escalating property prices and borrowing costs pose barriers to homeownership, notably for economically weaker sections. While initiatives like PMAY target this issue, a holistic policy approach is essential. Exorbitant land prices further deter developers from affordable ventures. Recent demand-side measures, such as stamp duty reductions during COVID-19, boosted home sales. Similarly, supply-side actions like reduced construction premiums in Maharashtra increased residential supply. Long-term implementation of such measures is vital to address the country’s housing shortage and its extensive sectoral connections. Additional strategies for affordable housing include rationalizing of stamp duties,provision of interest rate subsidies and leveraging unused PSU lands.

Adoption of technology

Technological advancements have revolutionized the real estate sector, expediting processes like property search and transactions. The emergence of PropTech has streamlined these operations, integrating advanced technologies such as AI, ML, IoT, and BIM. Despite innovations like 3D printing in construction, technology adoption in India remains nascent. To scale up usage, awareness and training are crucial. Globally, the IT industry, currently valued at USD 9 trillion, is projected to reach USD 20 trillion by 2034, fostering innovation. With increasing internet penetration, these technologies will propel India’s real estate industry towards its growth objectives effectively.

Need to expand sustainable and green construction 

The real estate sector, which is poised to grow rapidly and is one of the key drivers of the economy, accounts for 40% of all the emissions globally. According to the World Economic Forum, 40% of global energy and 40% of all the raw materials are used by the real estate sector. To collectively achieve the government’s net zero target, a reduction of the carbon footprint by the real estate sector will play a prominent role. The industry is currently at the early stage of adopting sustainable practices through strategies such as adoption of India Green Building Council (IGBC) norms, which aim to achieve net-zero carbon buildings by 2050.

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