Commercial Real Estate Witnesses Rise in Demand

Commercial real estate projects, including office and retail space, have started seeing increased demand after suffering poor sales during the economic slowdown, as firms and retailers revive expansion plans. In eight cities, including Delhi-National Capital Region (NCR) and Mumbai, firms leased out or sold 9.2 million sq. ft of commercial space in the three months ended 30 June, up 58% from 5.8 million sq. ft in April-June 2009, said Ravi Ahuja, executive director for development services at consultants Cushman and Wakefield India.

Some 16.4 million sq. ft of retail space is expected to be available in 2010, against 6.3 million sq. ft last year. Consultant Jones Lang LaSalle Inc. has predicted 8.9 million sq. ft will be absorbed this year, compared with 4 million sq. ft in 2009. “The commercial real estate space is again active with inquiries and transactions,” said Supreet Suri, director, The Three C Universal Developers Pvt. Ltd. The company is planning to launch a 12.5-acre commercial project in Noida, on the outskirts of New Delhi, by October. “We are getting inquiries for our Noida project, which is still in the planning stage,” Suri said.

Developers such as BPTP India Ltd, Assotech Ltd, Anant Raj Industries Ltd and Wave Inc. have also reported improving property demand. Metros have witnessed a large number of investment deals in office space development at information technology (IT) and corporate parks during April-June, according to a report by the Royal Institute of Chartered Surveyors. “While improved corporate profits seem to be the demand driver for office property, retail property has also seen an upswing, as a result of improved economic climate within the country, making it an attractive market for global retailers as well,” says the report.

Leasing and sale of office space in Mumbai and Delhi-NCR rose 69% and 18%, respectively, according to another consultancy, DTZ International Property Advisors. The report says 70% of transactions in Delhi-NCR have been recorded in Gurgaon, Noida and Delhi’s south business district. In Mumbai, most commercial realty projects are coming up in peripheral areas. Noida has attracted large multinational corporations from IT and the banking, financial services and insurance (BFSI) sectors who want to set up back offices, says an office market report from BNP Paribas Real Estate.

Mumbai’s Bandra Kurla Complex adjoining Santacruz, Andheri, Powai, Vikhroli and Vile Parle has also attracted buyers, says the BNP report. Consultancies say capital and rental values will remain stable in the near term as new projects inundate the market in the next few quarters. “Rental and capital values will remain stable as the markets will witness huge supply in coming months,” said Priyankar Bhikshu, head of research for India at DTZ International Property Advisors. “Increased absorption and reduced vacancy are likely to take place in most Indian cities by the end of this year. However, a complete revival of the rental market is unlikely until mid-2011,” Bhikshu added.

But deal sizes are getting smaller. “Multinational firms are looking for central locations in big metro cities. Since rental cost in these areas is still higher, the space occupied is smaller in comparison to the ones that were occupied during 2008,” said Rajesh Goyal, chairman and managing director of the Delhi-based developer RG Group. “In doing so, the occupiers have the dual advantages of cost saving and central location.”