Post-recession, demand for office space started improving across most major Indian cities on the back of steady economic recovery and low rental rates After months of depression, the commercial real estate market (especially office space segment) in India has begun to stabilise. Post-recession, demand for office space started improving across most major Indian cities on the back of steady economic recovery and low rental rates.
This surge in demand for office realty eventually improved transaction volumes in the country’s commercial property market, reported global real estate consultant CB Richard Ellis (CBRE).
Uptick in lease transactions
According to a recent report released by the Real Estate Intelligence Services (REIS) division of Jones Lang LaSalle Meghraj (JLLM), the volume of lease transactions have shot up across most Indian cities from the first quarter of 2010.
 Entitled as ‘The Seven Stars of India’, the report added that Mumbai, NCR[i]-Delhi and Hyderabad have witnessed over one million square feet (mn sq ft) of lease transactions each. The increase in demand for office space in the first quarter of 2010 was mainly driven by BFSI[ii] and telecommunications sectors, stated the report. Currently, the IT/ITeS sector is back in its expansion mode and will once again lead the charge, along with the BFSI segment. However, the secondary business districts (SBDs) will continue to record the best absorption rates in major Indian cities over the coming years.
Gurgaon, SBD North (Mumbai), SBD Bengaluru, SBD Pune, SBD Chennai, Hitec City and Gachibowli (Hyderabad) and Salt Lake (Kolkata) are the seven stars of India as outlined by the JLLM report. The report analysed 16 micro-markets across India’s tier I and II cities and based on expected supply, occupier demand and indicator movement picked up the final seven.
Vacancy levels dip, still excess supply
Of late, premium office realty space across major Indian cities registered a marked drop in vacancy levels to 3-4% over that of 13-14% in the first quarter of 2010, stated the CBRE report.
Commenting on the supply scenario, Abhishek Kiran Gupta, head (Research & REIS) of JLLM said, “With the forecasted growth of net completions expected to outpace net absorption, a considerable supply overhang is likely to persist over the next 1 year.”
Property consulting firm Cushman & Wakefield expects the supply for commercial real estate space across major Indian cities to stand at around 46-50 mn sq ft for 2010.
On the brighter side, Mr Gupta added that the net absorption of office space is projected to grow at around 29.4% CAGR to 42.6 mn sq ft in 2012, as opposed to 19.6 mn sq ft in 2009.
Major correction in rentals unlikely
Industry experts and sectoral analysts opine that rental rates may stabilise or will be marginally under pressure over the short-to-medium term. Therefore, the landscape is expected to remain favourable for tenants in 2010, while landlords will have greater influence from 2011.
“Indian commercial realty market is still witnessing oversupply and so any upward movement in prices is unlikely. Although there would not be any major price correction, marginal dip in prices in some areas is likely,” opined Keki Mistry, vice chairman and CEO of mortgage leader HDFC during the sidelines of an event held early this month.
To add to the sector’s joy, the constant dive in rental values has stopped or has slowed significantly in the metropolis, except for Mumbai and New Delhi where there is still a huge supply pipeline in the short-term. Going forward, these two cities are likely to lead the rebound in the real estate cycle, followed by Bengaluru, Chennai, Pune, Hyderabad and Kolkata, added the JLLM report.
Jeeta Bandopadhyay
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