‘India an outlier as global real estate slowly returns to normalcy’
India stands as an outlier in the global real estate market, which is just returning to normalcy with some uptick in transaction volumes, the confidence coming back with prospects of a reduction in interest rates, a top official at Knight Frank said.
“The best performing markets in our network at the moment are India and the Middle East,” Knight Frank’s Senior Partner and Group Chair, William Beardmore-Gray told businessline. There were more conversations around India compared to 5-6 years ago, he pointed out.
On the global real estate outlook, he said it was positive, but the revival was taking slightly longer than expected. Edited excerpts of the interview:
How are you seeing the revival in the real estate sector globally, in terms of transaction volumes? Do you think that a substantial cut in interest rates will fuel the momentum?
It’s different market by market, but if we’re talking global outlook, I think on the whole across Europe, Middle East, and Asia, it’s a lot slower than we hoped the return to the markets would be. In fact, I was talking 18 months ago about hoping we were going to see a difference in markets towards the end of this year, and we’re seeing more transactional activity at the moment across the key markets around the globe.
The main handbrake, of course, is interest rates and cost of capital. And the general trend around the world is for central banks to be bringing those rates down. We’ve seen reductions in rates across many markets recently and obviously in the UK.
And once the confidence returns significantly to investors that that is going to be the ongoing trend, there are a lot of people waiting on the sidelines to transact.
So going forward, I’m positive – but it’s just not going to be as quick as many of us could have hoped.
We’re not going to see interest rates down to the levels that they were five years ago. But they’ll be back to more normalised levels where it then makes sense to be investing in real estate in a way it’s been difficult over the last two years.
Broadly speaking, do you think that India and Asia to some extent, they are outliers in the real estate sector in the way that they are performing?
The best performing markets in our network at the moment are India and the Middle East. They’re absolute standouts in terms of record profits across those businesses, the most activity across any of our businesses.
And I suppose the big difference with India is that we saw when the GCCs retracted for a time, the Indian domestic market filled that void. And we’re about to see the largest take-up in offices probably in 2024. And that is a strong diversified market.
It’s not just across offices, it’s across warehousing, residential, and life sciences. That’s what we’re seeing in the Middle East as well.
It’s not just about high-end residential. It’s about development, retail, tourism. Jumping back to India, the question I’ve been asked most in the last 18 months in my travels around the world from investors is about India – and that’s a change. It wasn’t that way five or six years ago. So yes, I do see them as outliers.
How do you see the institutional flows into the real estate sector, especially in the office space?
Well, I think living sectors are the flavor of the month. And that is an area which is incredibly mature in the US. It’s mature in the UK. It’s growing in Europe, and I can see that just spreading out across the world.
There are shortages across all sectors, and living sectors are the same. Around 60 per cent of our clients would say that over the next 12 months, living sectors is where they want to be. So that’s senior living, healthcare, student living and built-to-rent.
But interestingly, actually the top three targets for clients at the moment are offices, warehousing, residential, or living of some sort.
What are the new trends you see in the real estate sector that will be there for a while?
I think the dominance of private capital is now here to stay. Quite often in the last cycles, what we saw was private capital come in when the institutions were not in.
Institutional investment is coming back into real estate. I think private capital will stay because it’s now much more sophisticated than it was 20 years ago. So, I think that’s going to have a major impact on the markets.
I think the point made earlier about living sectors, healthcare, etc., that’s only going to be on the uptick and mainly because a lot of these markets are not very mature at the moment. So, they will accelerate.
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