Activities in the commercial real estate sector push the demand
The popular theory of the economics states that if the demand for any item goes up, then the prices are corrected and normalised. Going by that theory, one would imagine that the office rents would go down with a strong bounce back in demand for space from the corporates. However Sanjay Dutt the executive managing director for South Asia at property consultancy firm Cushman & Wakefield states that this is not the case now.
Office rentals are likely to climb up in the coming months because of a shortage of quality spaces. During the recession since the demand for office spaces had gone down, the realtors had stooped developing plush office spaces in the key business districts around the country. Now the demand has suddenly surged and the supply is not there which has resulted in the hike in the rates.
Dutt also mentioned that in certain key locations, rentals could go up 20-25 % in the next 12 months. The situation has come to the surface now because most developers and private equity players ignored the office market that saw a dip in demand from companies because of the global economic slowdown. They had concentrated on the residential property market over the last three years, and the cash flow is there in that sector.
Hence suddenly launching projects and raising funds for the commercial properties will be a bit of a challenge in the commercial sector now. Anshul Jain the chief executive- India, at property advisory firm DTZ stated that because the money moved away from commercial, the sector will see office supply getting tightened.
As per the report published by property advisory JLL (Jones Lang LaSalle), in the calendar year 2014, 30.7 million square feet of good quality office space will be completed in the top seven cities of the country. In 2015, about 35 million square feet will be completed. In comparison, between 2008 and 2011, over 40 million square feet of supply came in to the market each year.
However post the Modinomics wave, a newfound excitement in the corporate sector has bounced back. A rising stock market, increase in the foreign investments in India’s infrastructure, e-commerce, manufacturing and other sectors has further helped improve business sentiments across sectors.
The property consultants speculate that sensing an improvement in the economy over the next 12 months, the companies are already starting to plan for that growth. This has resulted in a rise in demand for office spaces. Some corporates have already picked up spaces in the last few months. KPMG recently leased over 700,000 square feet of space in Bangalore.
Source- The Economic Times
