Though the year 2012 began with the expectation of a strong economic performance, the Indian economywitnessed a slowdown in 2011-12, similar to most of the other regional economies. There was subdued economic and property market activity across India against a backdrop of an uncertain and fragile global environment.
Expected GDP growth rate for 2012 had been revised downwards by the Reserve Bank of India (RBI) from initial estimates of 6.5 per cent at the beginning of the year to 5.8 per cent with even the central government now revising it to between 5.7-5.9 per cent from 7.6 per cent.
However, the GDP growth rate is expected to recover to 7.0 per cent in 2013 and 2014. Financial liquidity has been a big concern, especially in the real estate sector as RBI has maintained its discouragement for bank loans to the sector.
The commercial office markets in India recorded a downward net absorption trend in all of the major cities, largely as a result of the conservative approach by companies in various key sectors affected by global market uncertainties.
Net absorption in CBD and prime non-CBD locations saw a drop in the range of 22.0-23.0 per cent compared to the last year, though it is likely to remain stable in next year. However, with an improvement in overall economic conditions next year, net absorption could improve with IT/ITeS, BFSI and pharmaceuticalcompanies being the key demand drivers for office spaces. While most markets are expected to see a stable rental trend in the next year, they could see marginal appreciation in the next two years in select micro markets that have low vacancies.
Substantial supply is scheduled to come on stream in 2013. However, the growth in expected supply next year varies from city to city and micro market to micro market. Developers are expected to control the supply that becomes available and try and ensure that an oversupply situation does not develop.
Though net absorption for most of 2013 is likely to remain stable at the same rate as 2012, it could improve based on improvement in economic conditions. Demand from IT/ITeS, BFSI, Engineering, Consulting, Telecom and Pharmaceutical companies is expected to be dominant as they are increasingly consolidating their different offices and relocating to cheaper locations.
Whilst vacancies may increase in some suburban and peripheral markets due to the substantial supply anticipated, rentals are expected to remain stable with marginal increases in some tight markets such as the CBD in Gurgaon, suburban markets of Madhapur and Gachibowli in Hyderabad, etc.
Attractive investment opportunities across cities and micro markets still exist as yields are still very appealing since they are amongst the highest globally.
Both occupiers with substantial cash reserves as well as funds interested in pre-leased assets are expected to keep the momentum in sales transactions as valuations look quite attractive, especially in cities such as Mumbai where commercial office spaces are at a substantial discount compared to residential assets within the same locations.
Micro-markets to watch out for are BKC, Lower Parel, Goregaon East and LBS Marg. Rental price points are to remain under pressure in other micro-markets such as Andheri East and Thane due to the excess supply. Also, quality pre-leased assets within IT Parks that are available at less than their replacement costs are expected to drive substantial part of the investment sales activities next year (2013) apart from Corporate offices in CBD / off CBD locations.
http://economictimes.indiatimes.com/news/emerging-businesses/regional-hubs/north/office-space-real-estate-for-next-year/articleshow/17794545.cms
Note : This article is written by Ravi Ahuja, Executive Director, Cushman & Wakefield for Economic Times. The publication of this piece of writing on this blog is not intended for any commercial use.
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