Future real estate sentiment scores remain optimistic, while office market outlook improves

[ecis2016.org] The future sentiments of real estate sector stakeholders remained optimistic in Q2 2021, while the outlook for the office market also saw an improvement, as per the Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index

The future sentiments of real estate sector stakeholders remained optimistic in Q2 2021, in spite of the second wave of COVID-19 that struck during this period, according to the 29th edition of Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index Q2 2021 (April – June 2021). Further, the stakeholders’ reaction to the second pandemic wave was not as severe as it was during the first wave, as indicated by the relatively lesser drop in sentiment scores in Q2 2021, the survey noted. Although the current sentiment score dropped from 57 in Q1 2021 to 35 in Q2 2021, the drop was less intense than it was during the first COVID wave (Q2 2020) when the score had hit an all-time low of 22. The future sentiment score inched down marginally from 57 in Q1 2021 to 56 in Q2 2021 continuing to remain in the optimistic zone. Here as well, the outlook of stakeholders reflected more resilience in Q2 2021 than in Q2 2020. In terms of geography, the west zone saw the sharpest recovery in the future sentiment score¸ which jumped from 53 in Q1 2021 to 60 in Q2 2021.

You are reading: Future real estate sentiment scores remain optimistic, while office market outlook improves

The optimism in the residential market outlook continued in Q2 2021, as more than 50% of the survey respondents expected an increase in residential launches and sales in the coming six months. Stakeholder outlook on the office market also saw improvement in Q2 2021 especially with respect to leasing activity. In Q2 2021, 40% of the survey respondents were of the opinion that office leasing activity would increase over the next six months, up from 34% in the last quarter.

Shishir Baijal, chairman and managing director, Knight Frank India said, “The tragedy of the second wave of the pandemic has pushed the overall industry sentiments down in the second quarter of 2021. However, our learning from the first wave, as well as a less stringent lockdown in the second wave, have equipped us well to mitigate the severity of the economic ramification, showing some level of positive outlook among the stakeholders when compared to the dead low sentiment score of 22 during the same period last year. The availability of vaccines, a robust vaccination programme, along with continued economic activities, have been the primary reasons for the optimistic future sentiment score, as compared to last year. The real estate sector is treading cautiously and acknowledges that there is latent demand for both, office and residential sectors, albeit hindered by the prolonged pandemic.”

Overall sentiment score: Future sentiment and current sentiment

A score of above 50 indicates ‘Optimism’ in sentiments, a score of 50 means the sentiment is ‘Same’ or ‘Neutral’, while a score below 50 indicates ‘Pessimism’.

Source: Knight Frank Research

Current sentiment score

• The current sentiment score dropped from 57 in Q1 2021 to 35 in Q2 2021, the lowest in the last 12 months, moving into the pessimistic zone.
• However, the impact of the second COVID wave on stakeholder sentiments was less severe, compared to the first wave. After the onset of the first wave of the pandemic, the current sentiment score had recorded an all-time low of 22 in Q2 2020. A score of 35 in Q2 2021, although still in the pessimistic zone, is indicative of a more resilient market compared to the last time.

Future sentiment score

• The future sentiment score inched down marginally from 57 in Q1 2021 to 56 in Q2 2021, indicating the continuity in the positive outlook of market stakeholders. Developments, such as relaxations in lockdowns and restrictions and the re-opening of offices since June 2021, have buoyed the stakeholder outlook for the coming six months.
• The impact of the second wave was lesser on the future sentiment score than on the current sentiment score, reflecting the market’s preparedness to bounce back from the disruptions caused by the harrowing phases of the pandemic.

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Zonal future sentiment score

Source: Knight Frank Research

• Buoyed by the post-second wave resumption of economic activity, future sentiments of stakeholders for the next six months have remained in the optimistic zone across most regions.
• The north zone’s future sentiment score inched down marginally from 56 in Q1 2021 to 55 in Q2 2021, while for the south zone, the score fell from 63 in Q1 2021 to 57 in Q2 2021.
• The future sentiment score of the east region entered the pessimistic zone with a fall from 53 in Q1 2021 to 48 in Q2 2021.
• In contradiction to such drops, the west zone’s future sentiment score climbed up this quarter, going from 53 in Q1 2021 to 60 in Q2 2021.

Residential market outlook: Launches, sales and prices

Source: Knight Frank Research

• The residential real estate segment recorded strong recovery across cities, post the onset of the pandemic. Driven by the heightened need for homeownership, residential sales gained momentum across ticket sizes over the last year. Reflecting this positive performance, stakeholder outlook for the residential real estate segment has been recording a positive outlook since the past few quarters, which remained more or less similar in Q2 2021.
• In Q2 2021, 64% of the survey respondents, same as Q1 2021, expected residential sales to increase in the next six months.
• On the supply front, the share of survey respondents with the opinion that launches would either increase or remain at the current levels in the next six months fell from 91% in Q1 2021 to 78% in Q2 2021.
• With regard to residential prices, 47% of the Q2 2021 survey respondents – up from 43% in Q1 2021 – expected prices to remain stable in the next six months, while 45% of Q2 2021 survey respondents believed that prices would increase.

According to Niranjan Hiranandani, national president, NAREDCO and MD, Hiranandani Group, “The calibrated reopening of economic activities, with an accelerated inoculation drive, has resulted in an upward trajectory of home buying demand and sales in June, on back of stability and security it offers during the deep crisis. With pent-up demand on festive tailwinds, fiscal impetus in form of stamp duty waiver, unchanged ready reckoner rates, historic low home loan interest rate and deal sweetener by developers cumulatively resulted in demand impetus from domestic, as well as NRI home buyers’ segment. The positive sales velocity has resulted in lowering of ready-to-move-in inventory, as renters turn into the first-time home buyers and existing home owners upgrade to the larger luxurious apartments to incorporate a new normal lifestyle. The future of housing remains bullish, in lieu of optimistic economic growth, new project launch pipeline, rising GDP, improved core sectors indicators, credit availability to the branded developers, growing employment rate coupled with an attractive investment climate resulting in the positive developer future sentiment score.”

Office market outlook: New supply, leasing and rents

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Source: Knight Frank Research

• On the demand front, 40% of the Q2 2021 survey respondents, up from 34% in Q1 2021, expected office space leasing to increase in the next six months.
• In terms of supply, 69% of the Q2 2021 survey respondents were of the opinion that the new office supply would either increase or remain the same over the next six months.
• 21% of the Q2 2021 survey respondents, up from 15% in Q1 2021, expected office rents to increase in the next six months, while 40% expected rents to remain stable.

“The outlook for the commercial office market has also been progressive in Q2 2021, for both, leasing, and rentals. The demand for office or dispersed commercial portfolios will expand on the back of consolidation trend and expansion of satellite offices following the hub and spoke model. Value offices near value homes in an integrated township that offer a complete live-work-play lifestyle, helps to reduce carbon footprint, enhance productivity and increase employee retainability, will be an ideal future of work scenario. The remote work near home trend will give a fillip to new commercial development in suburban business districts. Thus, the next few quarters should see alignment to the new normal work trend shaping up in the work-sphere,” Hiranandani added.

Stakeholder future sentiment score

Source: Knight Frank Research; Note: Non-developers include banks, financial institutions and PE funds

• The future outlook of both, developers and non-developers (non-developers include banks, financial institutions and PE funds), remained in the optimistic zone in Q2 2021, although there was a significant fall in the sentiment score for non-developers.
• Developer sentiments improved marginally from 54 in Q1 2021 to 56 in Q2 2021 indicative of their positive expectations from real estate business in the coming six months.
• Non-developer sentiments fell from 64 in Q1 2021 to 56 in Q2 2021 indicative of the caution in their outlook for the next six months.

Getamber Anand, co-chair, FICCI Real Estate Committee and chairman and managing director, ATS Infrastructure Ltd said: “In the initial phase of 2021, we were gearing for a spirited turn-around, which was disrupted by the second wave. Despite lockdowns, developers have completed some major commercial projects and have put them for possession and lease. This shows the stronger confidence of developers in business opportunities in the new normal. In the premium housing segment, the global uncertainties have led to higher NRI investments in the Indian realty. It is estimated that NRIs have already invested over USD 13 billion in Indian realty in FY 2021. The affordable housing sales have shown strong growth, with figures in the Q4 of FY 2021 almost returning to pre-COVID levels. Additionally, the sector is actively involved in kick-starting under-construction projects, because brands that have performed and delivered in the past are seeing positive traction. Added to this, a good off-take of ready-to-move-in properties by end-users is another positive. The realty sector expects to record a strong growth number in the next three quarters, provided there is no third wave.”

Economic scenario and availability of funding

Source: Knight Frank Research

• Key macroeconomic indicators showed an impact of the second COVID-19 wave which was not as damaging as the last wave. For instance, the Manufacturing PMI (Purchasing Managers’ Index) dropped to 50.8 during the second wave in May 2021, whereas during the first wave in May 2020, it had seen a dramatic drop to 30.8.
• 84% of the Q2 2021 survey respondents expected the economic scenario to improve or remain at the present levels for the next six months.
• With respect to credit availability to the real estate sector, the stakeholder outlook remained optimistic in Q2 2021. 46% of the Q2 2021 survey respondents – up from 41% in Q1 2021 – expected the credit situation to improve in the next six months, while 33% expected capital availability to stay at the current levels.

Second COVID wave dampens future real estate sentiment

Future real estate sentiments saw a decline from 65 in Q4 2020 to 57 in Q1 2021 due to the second wave of the COVID-19 pandemic, as per the Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index

April 23, 2021: The onset of the second wave of the Coronavirus pandemic has dampened future sentiments of the real estate stakeholders in the country, according to the Knight Frank-FICCI-NAREDCO Real Estate Sentiment Index Q1 2021. The 28th edition of the Sentiment Index (January-March 2021) survey noted that the ‘Future Sentiment score’ saw a decline from 65 in Q4 2020 to 57 in Q1 2021 due to uncertainties resulting from the second wave of COVID-19 infections. However, it remained in the optimistic zone. The ‘Current Sentiment score’ recorded a marginal improvement, inching up from 54 in Q4 2020 to 57 in Q1 2021. This improvement can be attributed to the healthy momentum in the commercial and residential real estate segments during Q4 2020 and during January-February 2021.

Hampered by the second COVID wave concerns, the Future Sentiment score (for the next six months) of stakeholders has fallen across regions, even while it remains in the optimistic zone. Similarly, the Q1 2021 outlook of supply-side stakeholders reflects caution on the future of real estate for the next six months, even if their scores remain in the optimistic zone.

Overall sentiment score: Future sentiment and current Sentiment

Note: A score of above 50 indicates ‘Optimism’ in sentiments, a score of 50 means the sentiment is ‘Same’ or ‘Neutral’, while a score below 50 indicates ‘Pessimism’.

Source: Knight Frank Research; Please note: Data for 2018 is available for Q1 and Q4 only.

• The South Zone has seen a marginal decline from 66 in Q4 2020 to 63 in Q1 2021, while the score for North Zone has fallen from 58 in Q4 2020 to 56 in Q1 2021.
• The Future Sentiment score of the West region witnessed a significant drop from 66 in Q4 2020 to 53 in Q1 2021, while the score for the East zone has fallen from 65 in Q4 2020 to 53 in Q1 2021.

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With the substantial increase in COVID cases since March 2021, the outlook for residential launches and sales has softened in Q1 2021. Even so, the share of respondents that expect the residential market to grow or remain steady in the next six months is more than 80%, across parameters of launches, sales and prices.

Shishir Baijal, chairman and managing director, Knight Frank India said, “The sentiment of stakeholders remained cautious for both Current and Future Sentiment scores in Q1 2021, owing primarily to the second wave of the pandemic, resulting in economic uncertainties. The real estate sector had seen a strong bounce-back during the last few quarters, which has kept the future sentiment of stakeholders in the positive zone. With the central government refraining from a second nationwide lockdown, the sector would be hoping to hold onto the progress made so far. As some regions have already announced movement restrictions, it will be imperative to observe the key economic indicators in the coming months to check the sustainability of the growth that the sector has already achieved. The speed at which the inoculation drive is conducted, and the intensity of local restrictions placed will be proportional to the growth of the real estate sector’s growth in the coming months.”

Residential market outlook: Launches, sales and prices

• Even with the rising COVID infections since March 2021, the share of respondents that expect the residential market to grow or remain steady in the next six months is more than 80%, across parameters of launches, sales and prices.
• In Q1 2021, 65% of the survey respondents were of the opinion that residential launches will increase in the next six months. 26% respondents felt that new project launches would remain the same in the coming six months.
• On the demand front, 64% of the Q1 2021 survey respondents expect an increase in sales activity over the next six months. The share of respondents who expected the sales activity to continue at the same pace over the next six months jumped from 13% in Q4 2020 to 23% in Q1 2021.
• With regards to residential prices, 48% of the Q1 2020 survey respondents – up from 38% in Q4 2020 – believe that prices will increase over the next six months, while 43% were of the opinion that prices would remain the same.

Source: Knight Frank Research

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Office Market Outlook: New Supply, Leasing and Rents

Similarly, the second wave of COVID and the resultant mobility restrictions and possible lockdowns in some cities has adversely impacted office occupancy levels. This has resulted in weakening of the office market outlook for the next six months.

• In Q1 2021, 58% of the survey respondents were of the opinion that the new supply in the office market would improve or remain the same in the coming six months.
• As far as rentals are concerned, 44% of the Q1 2021 survey respondents expect office rentals to remain steady over the next six months.

Source: Knight Frank Research

On the macroeconomic front, the pace of economic revival appears to have slowed down, with some key economic indicators showing weakening over the last two months. Influenced by the change in macroeconomic developments, stakeholder outlook on the overall economic momentum and on credit availability has turned cautious in Q1 2021.

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“The dip in the future sentiment score in Q1 2021 mirrors the prevalent market uncertainties on account of the second COVID wave. However, there is no cause of worry for the industry, as it is well geared to mitigate the risk on ground. The ongoing production with uninterrupted supply chains will help the sector to rebound with more finished goods catering the discerning home buyers and the reverse migration of labourers is at bay due to ensured food, shelter and daily wages along with all the safety measures and vaccination shots. The business continuity plan is coping up with alternative digital platforms and leveraging innovative technologies to keep the sales momentum unhampered. Therefore, there will be a positive growth in the long run for Indian real estate,” said Niranjan Hiranandani, national president – NAREDCO and founder and managing director, Hiranandani Group.

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