Residential Market Recovers in a Newly Regulated Environment Keeping Prices Stable Across 2018: Knight Frank India

Knight Frank India has announced the tenth edition of its flagship half-yearly report – India Real Estate. The report presents a comprehensive analysis of the residential (across eight cities) and office (across seven cities) market performance for the period July – December 2018 (H2 2017). The report has established 2018 to be historically best performing year for the commercial office with leasing crossing 46 million square feet (msf). For the residential market saw some upward movement in sales velocity but stopped short of being a year of recovery. Total sales of residential units were estimated to be 242,328 units registering a 6% increase over full year 2017.

Both the residential and the commercial office markets of Bengaluru saw an uptick in demand. For the residential market, sales for full year 2018 were registered at 43,776 units, while new units launched were registered at 27,382 units. Commercial office demand remained strong for another year, with leasing activity levels settling at 13.4 msf, while supply largely remained restricted at 7.6 msf in 2018.

Residential market highlights for Bengaluru:

Residential launches in H2 2018 were at 11,826 units denoting a y-o-y growth of 41% over same time last year
On an overall basis, 2018 saw new residential unit launches to the tune of 27,382 units marking a 22% rise y-o-y, albeit on a smaller base.
The average size of newly launched units has shrunk by 7% in 2018 as compared to those in 2014
For the first time since 2014, the residential market saw positive sales growth putting the residential sector on an upward growth trajectory.
The average residential prices in 2018 saw a marginal growth of 2% y-o-y over 2017, but with smaller units, the effect on ticket sizes was limited.

Shantanu Mazumder, Senior Branch Director – Bangalore, Knight Frank, “Largely end-user driven, Bengaluru’s residential market remained buoyant with a line of caution. Both launches, and sales depicted upward trajectory, but the market activities can at best be termed conservative. Developers have been cautious of keeping a steady pace of new launches ensuring that demand is adequately catered whilst bringing down the unsold inventory in the market.”

Commercial market highlights Bengaluru

Bengaluru continued to see the highest volume of leasing with over 13 msf being transacted in the entire year. The percentage growth in 2018 over last year was recorded at close to 15%.
H2 2018 recorded nearly 7 msf of office space leasing surpassing the transaction volume in the first half of 2018 and registering a y-o-y growth of close to 17% from same time last year.
BFSI sector led the leasing activities in the city constituting 28% of total leasing volumes in H2 2018, while IT/ ITeS took up 37% share of total leasing volume.
At 7.6 msf, the total supply in 2018 took a contrarian path and registered a y-o-y decline of 6% over 2017.
As a result of office space demand continually outpacing supply, the vacancy levels in Bengaluru have been registered at 4.3%.
In the same space, the average rental values for Bengaluru also saw a rise of about 17% in 2018.

Shantanu Mazumder, Senior Branch Director – Bangalore, Knight Frank, “Bengaluru’s commercial market is precariously poised at this juncture where the supply is grossly lower than the demand. While, in current context it is making the office sector highly investor friendly providing rental security and relatively higher rental yield. However protracted trend of reducing supply can lead to stagnant or degrowth of the market.”