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Indian real estate expected to reach US$ 1.5 tn by 2034; driving 10.5% of economic output: Knight Frank India – CII Report

  • India’s GDP has the potential to reach US$ 10.3 tn by 2034
  • Urban cities in India will require 78 mn new homes between 2024-34
  • Upcoming demand could lead to USD 906 bn worth of new homes in by 2034

New Delhi, April 12, 2024: 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 USD 1.5 trillion by 2034, constituting 10.5% of the total economic output by then. In 2023, the sector’s market size was approximately USD 482 billion, contributing 7.3% to the total economic output. The residential market is expected to lead with a value of US$ 906 billion, followed by the office sector contributing US$ 125 billion. Land for manufacturing activities is estimated to generate a value of USD 28 billion, driven by rising demand in India, while warehousing is projected to yield revenues of US$ 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 INR to US$ exchange rate, India’s GDP could potentially reach US$ 10.3 trillion by 2034. 

Residential Real Estate 2034

India’s population is expected to surge to 1.55 bn 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 mn housing units by 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 US$ 906 billion over the next decade.

Commercial Real Estate 2034

In 2008, the top 8 cities in India cumulatively accounted for 278 mn sq ft office stock; which has now increased to 900+ mn sq ft. 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 (bn) sq ft of office space will be required by 2034, i.e. an additional requirement of 1.7 bn sq ft between in the next decade. As the sector scales up, the potential revenue generation from India’s office real estate is estimated to be US$ 125 bn 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 India emerges as global technology and services hub[1]. Assuming a similar pace of growth, the number of GCCs in India may scale up to 2880 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 fervor, 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 USD 1.5 trillion powerhouse by 2034, constituting a remarkable 10.5% of the nation’s economic output. This journey about sustainable progress, anchored in resilience and adaptability, paving the way for a brighter, more prosperous tomorrow.”

 Warehousing

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 mn square feet by 2034, indicating an increase of 42 mn square feet over the next decade. This sector has the potential to generate revenue of US$ 8.9 billion during the upcoming decade.  

 Volume of warehousing transactions in India

The Indian Real Estate: A Decade from Now, also estimates the share of India’s manufacturing sector can potentially increase to 21.3% of the GDP. As of 2021, India has allocated 500,000 hectares 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 hectares 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 USD 28 billion by 2034.

 Retail

As per Knight Frank estimates, organized 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 USD 10.3 trn, 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

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 USD 11.3 tn by 2034, the surge in private equity investments in the real estate sector is estimated to reach USD 14.9 bn by 2034, representing a Compound Annual Growth Rate (CAGR) of 17% between 2023 to 2034.

Emerging sectors such as data centers, 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.

 Key Recommendations

  • Capitalize 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 USD 1 trillion to the economy’s USD 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. a) Strengthening of training modules in institutes as per industry requirements
  2. b) Collaboration between academic institutions and private employers
  3. c) Encourage coursework and certification with professional bodies

 Urban housing requirement

India’s housing deficit, exacerbated by rapid urbanization, 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. a) Rationalizing of stamp duties.
  2. b) Provision of interest rate subsidies.
  3. c) Tapping into unused PSU lands.
  • Adoption of technology

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

  • 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 in 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.