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India's 2021 real estate sector outlook resilient, Bengaluru likely to see surge in office rents

In a report, Knight Frank says Asia- Pacific prime office rents are likely to decline between -3% and 0% in 2021 but Bengaluru is likely to see a surge in prime rents in 2021. Mumbai and NCR office rentals may remain stable during the period.

India’s office market is expected to remain resilient in 2021, with Bengaluru expected to see a rise in rental values and Mumbai and the National Capital Region (NCR) likely to remain stable, a report by international property consultant by Knight Frank says.

In terms of APAC Capital market forecast, the commercial yields for Mumbai, NCR and Bengaluru under office and warehousing segment are expected to remain stable in 2021, says the report Asia-Pacific Real Estate Outlook 2021: Navigating the Post-Pandemic Recovery.

In the APAC region, industrial investment share of commercial transaction volumes increased by half in 2020 and is expected to continue do well in 2021, as investors continue to jump on the e-commerce growth, the report says.

The prime office rents across the region for 2020 fell 4 percent year-on-year, which was in line with Knight Frank’s growth expectation of -5 percent to - 3 percent. At the same time, vacancy rose 1.8 percent to 12.6 percent in 2020.

However, the significant headwind for the Asia-Pacific office sector in 2021 will come from the new supply as several markets such as Jakarta, Manila, Shanghai, Beijing and Bengaluru have large development pipelines due for completion over the coming years.

Manila and Bengaluru will witness the benefit of existing low vacancies that will enable them to absorb much of the supply. Bengaluru, in particular, has the added benefit of expected improving leasing activity, it says.

On an average, these markets are expected to see 20 percent to 30 percent of existing stock potentially complete by 2022. For markets such as Jakarta, Shanghai and Beijing, with their higher vacancies, they are expected to face a prolonged challenging period.

Taking stock of all these, Knight Frank expects Asia- Pacific prime office rents to decline between -3 percent and 0 percent in 2021. In contrast, Bengaluru’s office market will witness a surge in prime rents in 2021, whereas in Mumbai and NCR rentals will remain stable, the report says.

Residential prices to remain stable in 2021

The prime residential price of Indian cities, including Mumbai, NCR and Bengaluru, are expected to remain stable in 2021. However, the reopening of borders will also bring back high-net-worth foreign buyers who have mainly been absent this year.

Heading into 2021, Knight Frank’s expectations are the same as 2020’s performance, with stable to moderate price growth in 17 of the 22 markets, underpinned by continued low-interest rates.

Most markets across the region are starting to reopen and ease their COVID-19 restrictions, which should reduce the risk of a rapid rise in unemployment.

“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," said Shishir Baijal, chairman and managing director at Knight Frank India.

This has created a sense of optimism in the sector. With news of the mass vaccine for COVID being only months away, the office sector is also expecting to see a revival with economic activities opening up worldwide, he said.

Logistics and warehousing showed resilience in the primary and secondary markets during the period. “As India at a steady pace adopts the new normal for various businesses, the sentiments of stakeholders and investors are moving in a positive direction across key cities,” Baijal added.

Bengaluru student housing tops the chart

Alternative living sectors such as multi-family, student housing and senior living within the Asia-Pacific region has been on investors’ radar for many years.

In 2020, the APAC region has witnessed some green shoots with the $1.36 billion Urbanest student housing portfolio transaction. Notably, Urbanest was the largest student housing deal done within Asia-Pacific and this alone was more than the combined transaction volumes over the past five years.

India’s student housing sector remains at a nascent stage despite the country having one of the largest student populations globally.

Bengaluru student housing topped the chart with the highest concentration of university colleges at 961 followed by Pune 819, Hyderabad 615, Jaipur 574 and Nagpur with 410.

The country’s student population is 34 million undergraduates and expected to increase in the coming years. The government targets to have 30 percent of all 18 to 23-year-olds enrolled in higher education to upskill their labour force as the economy evolves. This will create significant opportunities for purpose-built student accommodation for both developers and investors.

While COVID-19 remains a key concern heading into 2021, investment activities across Asia-Pacific are expected to improve slowly as international borders reopen and travel resumes.

Knight Frank says transaction activity in 2021 will be mostly focused on the ‘safe-haven’ core markets. The commercial yield for Mumbai, NCR and Bengaluru under the office and warehouse segment is expected to remain stable in 2021.


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