2021 India Real Estate Outlook: A new growth cycle

If 2020 was the year that changed everything, 2021 may be the year where change becomes the ‘new normal’ and adapting to this ‘new normal’ will require imagination, innovation and digital transformation. The arrival of 2021 will not shake off all the challenges of a pandemic-riddled economy but the groundwork for a sector-wide recovery has been laid. The year is poised to establish itself as the year where India enters a new phase of real estate growth, innovation and investment.

With business activities gaining pace and the Indian economy expected to rebound considerably in 2021, several important questions come to the fore – Will this year be the start of a new growth cycle for the Indian realty industry? What permanent changes are we likely to witness? Will any of the asset classes return to pre-COVID conditions?

The lifting of lockdown and travel restrictions is expected to revive real estate assets, improve income visibility and attract cross-border investments in 2021. Investors are expected to remain moderately cautious and will reposition strategies with improved asset pricing discovery during the year. The large dry powder, low interest rates, and continued monetary stimulus are expected to bring broad-based investment growth. The success of REITs is expected to drive investment momentum with a preference for office assets.

Strong market fundamentals in the form of sustained IT sector growth, increasing demand from sectors such as e-commerce, healthcare, FMCG and the growing presence of institutional investors will continue to drive the office market in 2021. The year is expected to witness close to 38 mn sq ft of new completions, while net absorption is likely to hover around 30 mn sq ft. This will be at par with the annual net absorption levels seen during 2016-2018. With the rollout of vaccines and the further easing of COVID-19 fear, there is a lot to look forward to and 2021 will be the year when India enters a new cycle of office market growth.

Sustained revival in new completions and net absorption

^{Note: *Average annual net absorption between 2016 and 2018; 2019 is not considered since the year was an outlier with exceptionally high levels of market activity
Source: Real Estate Intelligence Service (REIS), JLL Research}

The year 2021 will witness the industrial and warehousing space sector dialup its growth trajectory fueled by e-commerce and 3PL demand. The absorption is expected to be in around 35-37 mn sft. Space Demand from E-commerce to continue to gain traction as the behavioral shift from buying offline to online is expected to sustain and grow. This will be steering the growth in In-city and Urban logistics, demand in the cold chain industry, among others. While 4Q 2020 had outlined the tailwinds of recovery, new trends such as growing omnichannel as a business alternative in retail, built manufacturing spaces that reduce approval hassles and faster commissioning will bring newer opportunities, especially in light manufacturing requirements.

Even as the sector may witness increased supply from delayed projects, demand gaining ground will keep vacancy check at around 10% in 2021. The Indian market has now firmly established itself for a more predominant position in Grade A space as opposed to Grade B spaces

The year 2021 will be a defining year for the Indian DC industry as the passage of key legislations will give definite push to local data storage. This coupled with the likely roll out of 5G technology, edge computing and internet of things (IoT) will drive new demand. We expect Indian DC industry to add ~703 MW (IT power load) supply during 2020-25, translating into an opportunity of 9.3 million sq ft of real estate development. Mumbai is expected to witness the highest capacity addition followed by Chennai, due to infrastructural advantage of submarine cable landing stations, assured power supply and user demand.

Residential prices have remained stagnant while household incomes have witnessed steady growth over the last five years. In 2021, even if we assume residential prices in certain markets to move upwards, the mortgage rates are expected to remain at historical lows and annual household incomes will increase as the economy recovers. This will result in improved home purchase affordability, as evidenced by JLL’s Home Purchase Affordability Index. A combination of increased home purchase affordability and improved consumer sentiments will further lead to the translation of pent up demand into sales.

Home Purchase Affordability⁵ expected to increase

^{Note: Figures represent scores on the JLL's HPAI (Home Purchase Affordability Index); Higher values indicate greater affordability
Source: JLL Research}