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Indian real estate expected to reach $1.5 tn by 2034: Report

April 14th, 2024

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In its latest report titled ‘Indian Real Estate: A Decade from Now’, Knight Frank India, a leading real estate consultancy in the country, in association with the Confederation of Indian Industry (CII), has projected that the value of the Indian real estate sector will reach an estimated $1.5 trillion by 2034, constituting 10.5% of the total economic output by then. In 2023, the sector’s market size was approximately $482 billion, contributing 7.3% to the total economic output. The residential market is expected to lead with a value of $906 billion, followed by the office sector contributing $125 billion. Land for manufacturing activities is estimated to generate a value of $28 billion, driven by rising demand in India, while warehousing is projected to yield revenues of $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 Indian currency to the US currency exchange rate, India’s GDP could potentially reach $10.3 trillion by 2034.

India’s residential real estate outlook for 2034
India’s population is expected to surge to 1.55 billion by 2034 with an estimated 42.5% of the population residing in urban centres. As per the estimates from Knight Frank Research and CII, to accommodate the burgeoning urban population, urban cities in India will require an addition of 78 million housing units between 2024-34. 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 High-Net-Worth Individuals (HNIs) and Ultra High Net Worth Individuals (UHNIs) households in India are expected to rise from 3% to 9% by 2034, also driving significant demand for luxury housing. This surge in demand will have the potential to generate an additional market value output of approximately $ 906 billion over the next decade.

Share of households across different income groups

India’s commercial real estate outlook for 2034
In 2008, the top eight cities in India cumulatively accounted for 278 million square foot (msf) office stock; which has now increased to more than 900 msf. 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 square foot (bsf) of office space will be required by 2034, i.e., an additional requirement of 1.7 bsf in the next decade. As the sector scales up, the potential revenue generation from India’s office real estate is estimated to be $125 billion in 2034.

The report expects Global Capability Centres (GCC) to potentially drive the office market in the next decade. By 2030, there will be an estimated 2,400 GCCs across India as the country emerges as a global technology and services hub. Assuming a similar pace of growth, the number of GCCs in India may scale up to 2,880 by 2034.

Total number of GCCs in India

Gulam Zia, senior executive director – research, advisory, infrastructure and valuation, Knight Frank India, said, “In the coming decade, India’s economic ascent will be marked by an unprecedented surge, with the real estate sector poised to be a cornerstone of this transformative journey. Fueled by burgeoning wealth, robust consumer spending, infrastructural advancements, entrepreneurial fervour and strategic initiatives like ‘Make in India’, our nation stands on the brink of a profound economic evolution. We anticipate the Indian real estate sector to grow to a $1.5 trillion powerhouse by 2034, constituting a remarkable 10.5% of the nation’s economic output. This journey is about sustainable progress, anchored in resilience and adaptability, paving the way for a brighter, more prosperous tomorrow.”

India’s warehousing outlook for 2034
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 msf by 2034, indicating an increase of 42 msf over the next decade. This sector has the potential to generate revenue of $8.9 billion during the upcoming decade.

Volume of warehousing transactions in India

The report also estimates the share of India’s manufacturing sector can potentially increase to 21.3% of the GDP. As of 2021, India has allocated 5,00,000 hectare 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 hectare of land will be required for industrial use in India. This substantial increase in demand for industrial land has the potential to generate revenue amounting to $28 billion by 2034.

India’s retail outlook for 2034
As per Knight Frank estimates, organised 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 $10.3 trillion, 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 outlook for 2034
India has solidified 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 $11.3 trillion by 2034, the surge in private equity investments in the real estate sector is estimated to reach $14.9 billion by 2034, representing a Compound Annual Growth Rate (CAGR) of 17% between 2023 to 2034. Emerging sectors such as data centres, 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.

Knight Frank India’s key recommendations
  1. Capitalise on manpower
    India’s real estate sector is poised for 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 $1 trillion to the economy’s $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:

    1. Strengthening of training modules in institutes as per industry requirements
    2. Collaboration between academic institutions and private employers
    3. Encourage coursework and certification with professional bodies

  2. Urban housing requirement
    India’s housing deficit, exacerbated by rapid urbanisation, 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:

    1. Rationalising stamp duties
    2. Provision of interest rate subsidies
    3. Tapping into unused PSU lands

  3. Adoption of technology
    Technological advancements have revolutionised 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 $9 trillion, is projected to reach $20 trillion by 2034, fostering innovation. With increasing internet penetration, these technologies will propel India’s real estate industry towards its growth objectives effectively.

  4. Focus on expansion of sustainable and green buildings
    During the 2021 United Nations Climate Change Conference or COP26 held at Glasgow, the Indian government pledged to achieve net-zero carbon emissions by 2070. This would mean, the policy makers in India would actively implement a framework to countervail carbon emissions. To achieve such an ambitious target, it is required that all sectors in India collectively contribute to reducing their carbon emissions. 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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