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Commercial realty: On a recovery pathThe commercial real estate in India seems to be recovering from the slump and it is predicted to move forward, leaving behind the dark days of 2012. Top realty hubs – Mumbai and NCR-Delhi recorded a year-on-year absorption drop of around 47% and 26% respectively during 2012. While the first quarter of 2013 is already over, there remains crucial questions regarding the fate of commercial realty in the current year.
In 2012, major cities of Mumbai, NCR-Delhi, Bangalore and Chennai absorbed 72.5% of total commercial space in the country. In 2013, too, the same cities are expected to take lead. Experts are of the opinion that these cities will account for 74-76 per cent of total commercial property absorption.
IT/ITeS sector was the biggest contributor to office space absorption in 2012 and it is expected to take up the major share in absorption during 2013 as well. Mumbai, Bangalore and Delhi NCR are expected to remain the hub for big ticket commercial investors. Investor driven is predicted to go up in the cities of Hyderabad, Pune and Chennai. Apart from institutional investors, high net worth Individuals (HNIs) and non resident Indians (NRIs) are predicted to contribute towards investment in the commercial realty. Mumbai will be leading the way in case of corporate commercial transaction while Delhi-NCR will attract more investment from institutional investors and HNIs.
Domestic companies are looking to develop office buildings in tier II and III cities so as to expand their business to these cities. Due to faster economic growth in these small cities, demand for office space seems to be on the rise.
Over all, the experts are estimating an increase of 15% in office space absorption in 2013.
NRI investment is expected to rise up to a significant level in 2013. NRI investment in Indian real estate has been on the rise for the last few years due to falling rupee value against American dollar. The lucrative exchange rate benefits are pegged to increase number of NRIs investing in commercial properties in India substantially. The other reason for NRI interest in commercial investment in India is that the commercial property prices are still 15%-25% less than their peak prices during 2007-2008.
The demand for commercial space is all set to shoot up in suburban markets as well. Commercial realty has expanded to the suburbs only in recent times in India. The response from leading sectors like IT, Banking, Financial Services and Insurance (BFSI) and manufacturing sectors towards investing in suburban areas has been positive and the investors are looking at long term growth in suburbs.
Suburban locations such as Andheri Kurla Road, Andheri (W), Goregaon-Malad, LBS Marg and Powai in Mumbai and Outer Ring Road and Whitefield in Bangalore are emerging as strong micro markets in recent times.
The growth in service sector brings in good news for office space absorption in the cities. Service sector in India is growing at 8.5%, signalling the fate of office space would be hugely affected by the service sector. Almost all of Fortune 500 companies are entering the Indian market an cities of Mumbai, Delhi-NCR, Bangalore, Chennai and Pune are going to be benefitted.
India’s office market scenario seems stable and towards the second half of the current financial year office space absorption is expected to be the highest. A number of companies are looking to move in to smaller spaces and shift in to ready to move in buildings, to maximize the office space. However, BPO and MNCs are looking for big, spacious in existing markets.
Image courtesy of renjith krishnan at FreeDigitalPhotos.net
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