India's economy has shown remarkable resilience in the face of global economic challenges such as the COVID-19 pandemic. With a strong foundation built on domestic consumption, manufacturing, and a growing service sector, India experienced an impressive economic growth rate of 8.4% in Q3 FY 2024, surpassing expectations and setting the stage for future prosperity.
Key drivers of this growth include increasing wealth, infrastructure development, rising entrepreneurship, and initiatives like “Make in India.” These factors position India as an attractive destination for foreign investors. Assuming these conditions remain favorable, India's GDP could reach USD 10.3 trillion by 2034.
Real Estate: A Key Driver of Economic Growth
India's real estate sector plays a crucial role in the economy, supporting around 250 ancillary industries and being one of the highest employment generators after agriculture. Currently valued at USD 482 billion, the real estate sector contributes 7.3% to India's total economic output. By 2034, it is expected to grow to USD 1.5 trillion, contributing 10.5% to the economy.
Residential Real Estate: Adapting to New Demands
India's residential real estate market has evolved significantly over the decades, experiencing growth and challenges due to global and domestic economic conditions and government policies. Key events such as the 2008-09 Global Financial Crisis, demonetization, GST implementation, RERA, the NBFC crisis, and the COVID-19 pandemic have impacted the market. However, policy interventions like RERA have strengthened the sector, making it more transparent and consumer-centric.
Currently, the residential real estate sector is in an upcycle, driven by economic growth, wealth creation, and consumer aspirations. With India's population expected to reach 1.55 billion by 2034, and 42.5% of people living in urban areas, the demand for housing will continue to rise, requiring 78 million new housing units between 2024 and 2034.
Commercial Real Estate: Riding the Economic Wave
Despite global challenges, India's commercial real estate (CRE) market continues to perform well, driven by the IT/BPM sectors, global capability centers (GCCs), and the rise of flexible and co-working spaces. In 2023, office transaction volumes in the top 8 cities reached 60 million sq ft. By 2030, the number of GCCs in India is expected to grow to 2,400, potentially reaching 2,880 by 2034.
The expansion of office real estate is not limited to Tier 1 cities; Tier 2 and 3 cities are also seeing significant growth due to factors like business expansion, low costs, infrastructure development, and a rising IT and service industry. By 2034, an estimated 2.7 billion sq ft of office space will be needed, generating potential revenue of USD 125 billion.
Warehousing and Industrial Development: Driving Economic Integration
India's warehousing sector has transitioned from being dominated by unorganized players to attracting global investments. The sector's growth is driven by increasing domestic consumption, organized retail, government policies, and regulatory measures. Central government initiatives like the Warehousing (Development and Regulation) Act, Free Trade and Warehousing Zones (FTWZ), and the National Logistics Policy (NLP) 2022 have further boosted the market. Tier 2 and 3 cities are expected to see a significant rise in warehousing demand.
India is also emerging as a global manufacturing hub, supported by diversification from China and policy initiatives. Under the National Industrial Corridor Development (NIDC), 11 industrial corridors are being developed. To support manufacturing activities, an estimated 20 lakh hectares of land will be needed for industrial purposes, generating USD 28 billion in revenue by 2034.
Conclusion
India's real estate sector is on a transformative journey, bolstered by a robust economy and strategic policies. The residential, commercial, and warehousing sectors are poised for substantial growth, driven by domestic consumption, urbanization, and industrial development. With a focus on sustainability and technological advancements, India's real estate sector offers promising investment opportunities and is set to play a pivotal role in the country's economic expansion over the next decade.
Source: Knight Frank Research - India Real Estate: A Decade From Now