Can realtors rely on service sector

By: Karshni on 03:53

Amidst the gloomy economic slowdown the economy's service sector has still experienced strong growth and is advancing at a rate of 8.5% in FY12 where as the annual GDP growth was 6.5% during FY April 2011-March 2012 

Over the years, the service sector has been the growth engine of the Indian economy. Its growth rate has outperformed the overall growth rate of the country's GDP, which includes the service, agricultural and industrial sectors - the three major sectors of the economy. 

The service sector is comprised of the following industries: 

- Banking, financial services and insurance (BFSI)

- Information technology

- Consulting

- Trade, and

- Communication 

These are the major drivers of demand for commercial real estate in the country. The service sector has also been one of the country's core sectors over the past decade, as its contribution to GDP has significantly increased from 50% in FY96 to 63% in FY12. In FY12, when all other sectors (including industrial and agricultural) performed very poorly at an average of 3.1%, the service sector recorded a healthy growth rate of 8.5%. 

It is estimated that in 2011, the service sector accounted for about 70% of the demand for commercial office space in the seven major Indian cities - Mumbai, NCR-Delhi, Bangalore, Chennai, Hyderabad, Pune and Kolkata - with the remaining 30% coming from manufacturing and other industries. In the service sector, the IT/ITeS and BFSI industries contributed the most at 35% and 16% respectively. 

Over the years, consulting services have shown strong office space demand, which has grown from nearly 3.8% of the total demand in 2009 to 13% in 2011. Therefore, the growth of commercial real estate demand depends principally on the growth of the service sector.

The Reserve Bank of India projected that the Indian economy would grow at 6.5% in FY13. As compared to many major world economies, this growth rate is fairly healthy; in addition, an established service sector should help India resist any slowdown in office real estate demand. 

Source : Moneycontrol