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Residential sector coming back to normalcy in H2 2020 : Knight Frank India

Knight Frank India today launched the 14th edition of its flagship half-yearly report – India Real Estate: H2 2020 – which presents a comprehensive analysis of the office and residential market performance across eight major cities for the July-December 2020 (H2 2020) period. According to the report, Kolkata recorded office transaction volume of 0.09 mn sq m (0.92 mn sq ft) in 2020. The year 2020 started on a high note of transactions at 0.04 mn sq m (0.47 mn sq ft) in Q1 2020, a staggering 138% of the 2019 quarterly average. However, the pandemic induced lockdown led to minimal leasing activity in Q2 2020. As normalcy started returning with the unlocking, office leasing in Q3 2020 noted 62% of 2019’s quarterly average, further increasing up to 68% in Q4 2020.

 

The average deal size in the city was reported at 1,338 sq m (14,400 sq ft) in H2 2020. Nearly 71% of the transactions in this period were driven by smaller space office take-ups of up to 1,486 sq m (16,000 sq ft). This can be attributed to the transition to working in new normal where companies in pharma, advisory, telecommunications, and media preferred smaller space -take-ups across micro markets.

On the performance of the residential asset class, the Knight Frank report cited that the pent-up demand translated into total sales of 5,975 residential units in H2 2020. The homebuyers’ preference was largely skewed towards projects that are within the price bracket of up to INR 5.0 million that were either ready-to-move-in or nearing completion. As a result, ready-to-move-in inventory is gaining more traction which also resulted in heightened enquiries for products with ticket sizes up to INR 5.0 million. The city in H2 2020, had low supply compared to demand, which translated into a decline in unsold inventory for the third consecutive year. In 2020, the unsold inventory declined by 14% YoY.

OFFICE MARKET HIGHLIGHTS OF KOLKATA

Source: Knight Frank Research

  • Salt Lake City continued to remain the most popular business district amongst occupiers. The office spaces leased here largely determined the overall transaction volumes of the city.

In H2 2020, the Peripheral Business District-1 ([PBD-1] [Salt Lake City]) comprised 48% share of the total gross leasing pie.

  • The Peripheral Business District-2 ([PBD-2] [Rajarhat New Town]) accounted for a 48% share in the city’s overall leasing volume in the second half of 2020.
  • The Information Technology and Information Technology Enabled Services (IT/ITeS), which was the largest sectoral occupier in H2 2019, accounted for 43% of the total leasing in H2 2020. However, Kolkata attracted substantial occupier interest from companies in the Other Services sector in H2 2020. Advisory, telecommunications, media, pharma and consulting companies together accounted for 53% of the total transaction volume in this period. The manufacturing and BFSI sectors accounted for 3% and 1% respectively of the office transactions in H2 2020.
  • Due to a large office supply infusion of 0.56 mn sq m (6.0 mn sq ft) in 2019, new supply was expected to remain low. The outbreak of the pandemic also led to a further deferment in construction activities. In 2020, new office supply was recorded at 0.009 mn sq m (0.10 mn sq ft).

QUARTER SNAPSHOT

Q1 2020 Q2 2020 Q3 2020 Q4 2020
Transactions mn sq m

(mn sq ft)

0.04(0.47) 0.02(0.21) 0.02 (0.23)
Transactions as % of 2019 Quarterly average 138% 62% 68%
New completions mn sq m

(mn sq ft)

0.008 (0.09)
New completions as % of 2019 Quarterly average 6%

Source: Knight Frank Research

 

Swapan Dutta, Branch Director – Kolkata, Knight Frank India said, “The on-going pandemic had brought business activities to a grinding halt in Q2 2020. However, with the economic environment moving towards improvement and return to normalcy, the city witnessed some meaningful improvement in H2 2020. Despite the resumption in economic activities and occupiers rethinking their strategies for office spaces, the number of deals in H2 2020 largely remained at par with H2 2019. Markets is likely to grow in the near future on account of resumption of business and occupiers revisiting their expansion plans within the city. As small companies are taking up spaces in micro-markets, we believe in the coming years, Rajarhat New Town will remain the most preferred location for office space consumption in Kolkata.”

 

RESIDENTIAL MARKET HIGHLIGHTS OF KOLKATA

Source: Knight Frank Research

 

  • In H2 2020, the weighted average pricing of residential products in the city declined by 4% YoY and stood at INR 34,585/sq m (INR 3,213/sq ft). This is due to a slowdown in sales in the first half of 2020, and momentary curtailment of demand during the lockdown.
  • South Kolkata continued to account for the highest share of sales volume in both percentage change and number of units sold in H2 2020. From a 35% share of total sales in In H2 2019, the share of this micro-market in Kolkata’s total sales has steadily increased to 42% in H2 2020. Joka, in particular, remains a key location for residential units’ absorption due to the upcoming Metro connectivity.
  • South Kolkata has witnessed a frenetic pace of new residential construction in the past few years. This micro-market always accounted for at least one-third share of new launches and has been a conventionally-preferred residential destination of the city.
  • Rajarhat constituted 21% share of the total residential units sold in H2 2020.
  • North Kolkata, recognised primarily as an industrial belt until a few years ago, has emerged as a preferred residential location since the Metro construction picked up the pace on the Garia to Dum Dum Airport line. Areas such as Sodepur, BT Road, Madhyamgram and Jessore Road have a number of affordable and mid-income segment projects launched by reputed developers, accounting for 20% of the total residential units sold in the city.  In terms of new launches, the city accounted for, 45% share of home supply in H2 2020.
  • Western Kolkata accounted for 12% of the city’s sales volume in H2 2020. The share of sales in this micro-market has been steadily decreasing since H1 2019 due to a lack of social infrastructure in this belt. The eastern and central micro markets have marginal shares of units sold, to the tune of less than 5% and 1%, respectively.
  • Of the total residential launches in H2 2020, products in the ticket size range of INR 2.5–INR 5 million accounted for 62%, followed by products more than INR 5.0 million accounted for 22% and the product around INR 2.5 million at 16%.

 

 

 

 

 

 

QUARTER SNAPSHOT

Q1 2020 Q2 2020 Q3 2020 Q4 2020
Sales (housing units) 2,937 3,921 2,054
Sales as % of 2019 Quarterly average 104% 139% 73%
Launches (housing units) 858 1,934 1,356
Launches as % of 2019 Quarterly average 61% 137% 96%

        Source: Knight Frank Research

 

Note: Q2 2020 market activity: COVID-19 disruptions in market activity led to a standstill in sales activity at residential project sites and registration offices during Q2 2020. In some cases, customers paid nominal amounts on application for housing units, which could be identified and allotted later. Such instances of transactions with limited details on booking have not been considered in the Q2 2020 numbers. With more details awaited on certainty of such transactions, the recording has been deferred and the same were captured during the subsequent reporting period.

 

Swapan Dutta, Branch Director – Kolkata, Knight Frank India said, “The resumption of economic activities with the phase-wise unlocking in H2 2020 has proved beneficial for Kolkata’s residential market. The market witnessed a resurgence of positive consumer sentiment during the period, as the business activity slowly came back to normalcy. The restart of construction activity and developers pushing hard to lure homebuyers with flexible payments, indirect discounts, etc. has resulted in meaningful sales and launches in H2 2020 compared to H1 2020. Micro- markets with better infrastructure quality have accounted for 7% of total new launches in H2 2020. Kolkata being one of  the affordable markets and with a trend of investment in under-construction properties, the future of the residential sector looks stable.”

 

 

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