Is the commercial realty sector reviving?  

February 23, 2010

Commercial real estate, which was in the doldrums over the past year, is on a gradual recovery path, claim industry analysts. They expect prices to stabilise by March 2010 and then witness an uptrend in the April-June 2010 quarter.

“The results of this quarter (December 2009) indicate that with improving economic conditions in India, the commercial property market is also getting fortified and moving closer to stabilisation. Tenant demand has been improving gradually over the past two quarters and confidence about future rental activity is also quite positive,” said Sachin Sandhir, managing director and country head, RICS India.

“There has been a rise in the number of (customer) enquiries in February compared to the earlier situation. It is not as bad as it was, but that does not mean that rents will go up and occupancy levels will increase. Interest is building up, but gradually, “said Pranay Vakil, chairman, Knight Frank.

However, a few industry experts point out that non-resident Indians (NRIs), who are a major factor driving property prices, are not ready to pay more than the prevailing prices. Consumers are still negotiating to bring down prices, although not as aggressively as earlier. They also say that vested interests are painting an over-optimistic picture of the market conditions in collaboration with the media.

“Commercial real-estate will at least take a year to revive. I feel prices won’t go up during this period. A sentiment of optimism is being created by players who have lined up their initial public offers (IPOs) in the coming months,” said Pankaj Kapoor, founder of real-estate research firm Liases and Foras Vishal Gupta, vice-president, project advisory and structured finance, SBI Capital Markets, echoed the same opinion. “Commercial real-estate prices are not going to move up for some time. There will be lower supply in the short term and prices of office space are currently sustainable. Banks are also not keen on financing commercial projects.”

 “Rental declines have more or less stagnated but the amount of space available and in the pipeline will keep rental increases in check, barring industrial space where there is comparatively lesser available space. The modest rise in capital values across sectors is also encouraging,” said Mr Sandhir of RICS India.

According to a survey conducted by RICS, investor purchasing has increased by approximately 20% in industrial spaces and 35% in office spaces, but is still down by 10% in the retail segment. Between April and June 2010, the availability of office space will increase by around 50% in retail, 10% in the industrial segment and 55% in office space.

“We don’t see an upward movement in prices in the next eight to nine months. On a country-wide scale, the supply of new projects has doubled compared to last year, and the demand increased by 15% last quarter.  In Mumbai, there is almost 50% over-supply of commercial real estate,” said Raja Kaushal, executive director & chief operating officer, BNP Paribas Real Estate.

He added, “South Mumbai will soon be flooded by 12 lakh sq ft commercial space. There will be a lot of options available for customers. By June 2010, 10 million sq ft of developed commercial space will hit the market and another 5 million sq ft will be available by December 2010.” This will also create downward pressure on rentals.  — Pallabika Ganguly