Office real estate market holds steady while residential remains in doldrums: Knight Frank

While things are not looking up for residential real estate sector, stakeholders remain positive on the office front and expect leasing rates to be on an upward swing in the coming six months.

A survey by consultancy Knight Frank India, Federation of Indian Chambers of Commerce and Industry (FICCI) and National Real Estate Development Council (NARDECO) shows that market sentiment towards new office supply is expected to remain strong.

About 83 per cent of the respondents believe that the second half (July to December) of calendar year 2019 will see new supply additions and continue its momentum in key office markets across the country.

According to Knight Frank Research, office leasing recorded a decadal high of 2.6 million square metres (or 27.4 million square feet) for space transacted in a single period during H1 (January to June) 2019 due to demand from IT/ITeS and co-working spaces.

"Stakeholder outlook with regards future rental appreciation remains upbeat in Q2 (April to June) 2019 with 86 per cent of the stakeholders expecting rents to either remain stable or inch upwards in quality office space in key locations due to limited options," it said.

However, the residential sector remains in doldrums.

"The overall slowdown in economy coupled with factors like the non-banking finance companies (NBFCs) crisis, developer defaults and bankruptcies have slackened the sentiments of sector, especially for residential segment," said the research report.

The situation is further compounded by factors like ongoing liquidity crisis and a diminutive demand scenario. The future sentiment score in Q2 2019 dropped to 52 compared to 63 in the first quarter, suggesting that the industry is exercising caution.

The sentiment score of the developers and the financial institutions significantly plummeted in Q2 2019. Financial institutions have moved into the pessimistic zone at 48 (versus 64 in Q1) while developers were at 52 (versus 64 in Q1). Developers are possibly more optimistic because they anticipate a growing affordable housing business.

About 74 per cent of stakeholders in the survey opined that the economic situation will be the same or may even worsen in the coming six months, showing low confidence in the market situation.

Knight Frank stated that a slowdown in consumption, lower investment and tightening of borrowing ecosystem has further compounded to negativity in outlook. Global rating agencies and multilateral institutions like International Monetary Fund (IMF) and Asian Development Bank (ADB) have lowered India's GDP outlook.

About 53 per cent of the stakeholders in Knight Frank's Real Estate Sentiment Index Q2 2019 opined that the funding scenario may worsen in the next six months with lenders exercising caution in lending to sectors such as real estate, automobile and other consumption-driven sectors.