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
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.
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.
Mr Neel Raheja, Chairman, CII National Committee on Real Estate & Housing said, ” ahead to 2034, the prospects for India’s real estate sector appear highly re-assuring, driven by a confluence of factors such as shifting demographics, rapid technological advancements, and supportive policy measures. This confluence is expected to catalyse significant investments in the sector, buoyed by strategic foresight and innovative approaches. Going forward, the real estate market is poised to offer a myriad of opportunities for investors across its asset classes.
Mr Raheja said, “In the next decade, with a significant growth in the size of the economy, the real estate industry is poised for enormous opportunities in terms of shifts in consumption patterns as well as in revenue expansion. I look forward to this report defining the real estate growth story, in turn reflecting upon its role as a leading engine which will take the Indian economy to its path of success.
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. Assuming a similar pace of growth, the number of GCCs in India may scale up to 2880 by 2034.
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.”
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.
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.
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.