Flat quarter for residential properties, office leases trend lower, shows Knight Frank report

Sales are on a flattening trend, but too early to press the panic button, says Knight Frank

Residential sales were flat during the September quarter this year in the top eight property markets in India, namely Mumbai, National Capital Region, Chennai, Kolkata, Bengaluru, Pune, Hyderabad and Ahmedabad. Even office leasing has continued to trend lower quarter-on-quarter, according to the quarterly India Real Estate report by Knight Frank India.

For homes, much of the ‘stress’ and inventory build-up has been in the luxury and ultra-luxury categories, especially in the Rs 20-50 crore and Rs 50-100 crore segments, with low supply in the affordable categories also keeping volumes in check, according to the report.

Homes: A Flattening Trajectory

The home sales during the September quarter, generally a slow one due to monsoon, was weighed down by the "shradh" period prior to Navratri this year, and was up by only one percent to 87,603 units, said the Knight Frank report. During the same period, new supply declined by 2 percent, even as unsold inventory across the markets inched up by 4 percent to more than 5.06 lakh units.

However, the inventory overhang, defined in terms of quarters to sell the existing inventory at current "run-rates" with no addition in supply, remained largely flat at 5.8 quarters, indicating a mixed picture in sales trends. The Sales velocity - speed at which properties transition from a potential opportunity to a closed deal - has remained stable albeit flatter than the 2021-23 period.

Gulam Zia, Knight Frank India's senior director for research, advisory, infrastructure, and valuation said that despite plateauing trends, it is too soon to hit the panic button regarding a potential crisis.

"The lack of supply in affordable housing is keeping volumes in check, and we are also seeing signs of cracking in the mid-to-upper end of the market, but we need to be cautious. We need to hold our horses before arriving at any conclusion that the market is in crisis, because the signs are pain are not there," Zia said during a media briefing.

During the reported quarter, home prices in most markets, including Mumbai, increased in single digits, but the National Capital Region, Bengaluru, and Hyderabad remained the exception, where prices increased by 19 percent, 15 percent, and 13 percent respectively.

Ankita Sood, the national director of research said that home price increases in the National Capital Region in particular has pushed some buyers out of the market, although the increases are moderated by around 8-9 years of flat prices, especially during the real estate debt crisis of the mid-2010s.

Offices: Moderating Expectations

In offices, much of the downturn in new leasing, lower by 6 percent to 17.8 million square feet (msf) was due to a decline in leasing by multinational players to set up global capability centres (GCCs), while demand from third-party IT services showed a surprising recovery in demand.

This has meant that observers are scaling down from ambitious leasing targets of more than 90 msf for the full year, and are instead targeting a more moderate growth of 20 percent growth in gross leasing to around 85 msf for 2025, up from around 72 msf last year. Nearly 90 percent of the office leasing transactions were in Grade-A offices, indicating a flight to quality by occupiers to attract and retain talent in offices.

Knight Frank said the impact from measures such as the tightening of H1-B visa standards by the United States, or the ongoing tariff wars remains to be seen in terms of GCC growth in India.

"Both tailwinds and headwinds are expected because of the H1-B matter. Companies may outsource more from the US, and whether it is to Canada, South America, or India remains to be seen. The effects of this, as well as the tariff measures on GCCs, are expected in the upcoming quarters," noted Viral Desai, Knight Frank's senior executive director.