Average residential property rentals to rise further: Industry experts

Consumers are preferring to take homes on instead of buying them, as construction costs and interest rates rise

Owing to rising construction costs and interest rates, average rentals for residential properties, which declined substantially during the pandemic, have gone up significantly during the past two years. They are expected to rise further as consumers are preferring to take homes on rent instead of buying them, according to sector experts.

A combination of factors, including greater economic activity, urban migration, inflation, supply and demand dynamics are responsible for the spike in rents across various major cities, they say.

“With more companies calling employees back to office, including those in the hybrid mode, rental demand is rising across the top seven cities, after plummeting during the two Covid-19 waves,” said Anuj Puri, chairman, Anarock group.

Experts say that due to high demand for residential and commercial spaces, average rentals have also spiked across the various segments of the industry, especially in mid-premium and luxury segments.

Moreover, this has created opportunities for property owners and investors looking to capitalise on the growing demand for rental properties in these cities.

Anarock’s data shows that prominent localities with high rental demand saw double-digit growth in rents  between 2019 and 2022, with Hyderabad being a notable exception. Some of the major residential markets witnessed an increase of more than 20 per cent in monthly rentals.

Cities like Mumbai and Chennai saw a 13 per cent rise in average rent, compared to Bengaluru's 14 per cent and Kolkata's 16 per cent.

Among the major areas, Noida Sector-150 remained on top with monthly rentals for a standard 1,000-sq-ft flat at about Rs 19,000 a month, from Rs 15,500 in 2019.

Key micro-markets in Pune, namely Hinjewadi and Wagholi, saw average monthly rentals for a standard 1,000-sq-ft home go up by 20 per cent and 21 per cent, respectively, in the last three years, shows Anarock data.

Citing the consultant’s data, Amarendra Sahu, chief executive officer, NestAway Technologies said that in the past three years, the average rent for standard 2 BHK apartments, which are the highest in demand, surged by as much as 23 per cent across major Indian cities. NestAway is a  Bengaluru-based home rental network.

The high demand for rental homes was also due to the existence of the hybrid work model that prevailed during the pandemic.  “It is expected that home rents across major cities in India will continue to rise for the rest of the year, Sahu said.

Some experts also feel that changing lifestyles and preferences of millennials and Gen- Z have resulted in a shift towards rental housing as a flexible and convenient option.

The need for socialising and community living has driven the younger demographic towards co-living spaces and rental properties.

“Millennials and Generation-Z prioritise their living experiences which gives the always-on-the-go generation an unprecedented sense of mobility to choose homes wherever and whenever,” said Deepak Anand, Co-founder & CEO, Housr, a co-living operator.

Additionally, the Covid-19 pandemic has accelerated the shift towards remote work and flexible living, leading to an increased demand for rental housing in cities, Anand added.

Co-living spaces have become another popular option for individuals whose careers or lifestyle choices require them to travel frequently, and who are unwilling to settle in one particular location.

There will be pent-up demand for co-living and rental housing. Especially for players like Housr, one can expect a 10-15 per cent surge in the next year owing to the growing number of options available in the luxury co-living market, Anand said.

“Just like any supply and demand equation, supply here seems to grow at a much slower pace and demand appears to be growing exponentially as offices start to open up, " said Abhishek Tripathi, Co-founder at Settl.

"On an average, the spike in rentals is close to 23 per cent across units in our business and we expect them to continue rising in the near future with the increased flow of migrant populations," Tripathi added.