The 2022 story: Indian real estate’s rise from the lows

The year 2022 will be marked as the year when we comprehensively put the once-in-a-century-pandemic behind us, although some parts of the world continue to grapple with it to some extent. As the world was eagerly looking to settle down, underpinning a future of stability and growth and green shoots of recovery became visible, a new set of challenges emerged. Supply chain disruptions further exacerbated by the geopolitical crisis led to persistent inflation and an environment of economic uncertainty. The response by monetary authorities and central banks globally to arrest the price rises, by increasing interest rates, created bouts of currency fluctuations and turbulence in capital flows. Further, talks of a global slowdown and recession started looming. India, the fifth-largest economy, suffered from imported inflation. The RBI acted deftly to negate the effects of inflation in line with global trends while attempting to minimise its impact on growth. The robust macroeconomic fundamentals, emergence as an alternative manufacturing hub, and resilient domestic economy helped India weather the global headwinds partially.

The real estate sector is closely linked to overall economic growth and showed signs of a sustained turnaround in India during the year. The net absorption in office markets (a marker of business and employment growth) is on track to return to its 5-year average of the pre-pandemic era, with employee wellness, health, and affirmative action on sustainability high on the corporate agenda. Flexibility and hybrid working with increased talent mobility and dispersion were key themes that also defined commercial real estate decision-making in the year. The residential sector witnessed a robust demand revival with the year expected to register a decadal high in home sales. What a time for homebuyers, with low interest rates and great offers, with homebuying preferences and home ownership dynamics undergoing a marked shift. The retail sector saw a remarkable turnaround with footfalls and sales both crossing the pre-pandemic levels, giving a growth momentum to retailers’ expansion plans while underlining the strength of brick-and-mortar retail in the country. India’s warehousing & light manufacturing sector is also expected to post a record absorption on the back of strong demand from 3PL, e-commerce, retail and engineering/manufacturing sectors as the share of digital wallet and spend has gone up significantly.
 

This was also the year when ESG became mainstream and was a major driving force in real estate as well with users and occupiers, driving the need for increased sustainability certifications and procurement of green power in the commercial and warehousing sector.

The investment momentum which picked up at the start of the year was influenced by rising interest rates, geo-political uncertainty and currency fluctuations. Rising interest rates led to the shrinking of risk-free spreads with investors getting in wait and watch mode. The uncertainty has led to talks of re-pricing assets and the expected returns. The deal volume witnessed during the year saw a natural preference for the office sector followed by warehousing, retail and data centres.

The Indian real estate sector is expected to continue its growth trend in 2023 while dealing with the challenges of higher interest rate and economic growth and input price pressures. Each sector will go through its own set of changes and trends in the next year and through this report we bring to you our projections and forecasts on how 2022 is slated to close and 2023 is expected to perform across different asset classes and other macro themes.