By: Anshuman Magazine, CMD, CBRE South Asia
Track2Realty: India’s economy grew 5.7% y-o-y in Q1 2014–15 (April–June) belying market forecasts of 5.3%, and showing signs of recovery following annual growth numbers of between 4.4% and 5.2% in each quarter between Q1 2012–13 and Q4 2013–14.
Policy support and improved sentiment drove faster growth in the first quarter, following the election of the new government in May 2014, when market sentiments improved and boosted transactions and investments. Foreign Direct Investment alone saw a dramatic 34% y-o-y increase during Q1 2014–15 as multi-national companies reacted positively to the new government’s reform agenda.
Going forward, faster infrastructure approvals and corporate decision-making look likely in the coming months, which will support investment and demand for commercial real estate. A relaxation in interest rates is required to revive sagging demand in the housing sector and generate investor confidence. With this in mind, the onus will be on the government to follow through with the reforms outlined in the Union Budget 2014–15 to support the economy.
Office space update
Contrary to preceding months, the commercial real estate market saw subdued transaction levels, with leased space declining marginally by around 4% in August. Although small to medium-sized office spaces continued to attract demand, a few large closures mainly for back-office requirements were seen in Gurgaon, Pune, Bangalore and Mumbai.
Delhi NCR was the largest contributor to office space demand among the leading cities, followed by Pune and Mumbai, representing about 70% of the total space transacted during this month. Occupier interest remained strong in micro-markets such as Gurgaon in the NCR; Lower Parel and Andheri in Mumbai; ORR and Whitefield in Bangalore; Yerwada, Hinjewadi, Kharadi, Baner in Pune and Madhapur (IT Corridor) and Nanakramguda (Extended IT Corridor) in Hyderabad.
The IT, BFSI, manufacturing and engineering, construction, and consulting and research sectors continued to drive demand for office space. SEZ developments in Gurgaon, Bangalore, Pune and Chennai continued to witness steady demand during this month.
The month of August also witnessed enquiries for office spaces with larger floor plates that are likely to convert into transaction closures in the coming months. Rental values remained largely stable across all micro-markets of leading cities.
Limited supply and healthy demand, however, led to rental appreciation in select developments of the IT Corridor in Hyderabad. On the other hand, values at the Bandra–Kurla Complex in Mumbai declined marginally, as the developers reduced their rental expectations (in the existing developments) owing to supply pressures.
Housing market update
A stable government at the helm of affairs, and a slew of measures announced for the housing sector in the recent Union Budget led to a slight improvement in home buyer sentiments. The housing segment across cities such as the Delhi NCR, Bangalore, Pune and Kolkata attracted a slight increase in home buyer demand and new project launches in August.
Meanwhile, Mumbai, Hyderabad and Chennai saw stable demand and limited supply addition during the month as developers planned to launch projects during the festive season to improve sales.
Demand continued to remain focused towards mid-end and high-end projects, largely concentrated in the emerging micro-markets of Noida, Noida Extension and New Gurgaon in the Delhi NCR; Kanakpura Main Road, Hebbal, Hosur Main Road and CV Raman Nagar in Bangalore; Mogapair, Nungambakkam, Anna nagar and Ayapakkam in Chennai; and Baner and Tathawade in Pune.
In addition, emerging micro-markets such as Dhanori (East) and Undri (South) in Pune attracted healthy demand owing to a steady increase in the launch of affordable housing projects. It is anticipated that new project launches will increase over the next few months on the back of the upcoming festive season, a revival in economic sentiments, and tax incentives introduced by the new government.
Organized retail space
During August, high streets across leading cities continued to attract strong demand from domestic retailers, largely led by food and beverage (F&B), apparel, accessories and electronic segments. However, demand remained sluggish in the organized segment owing to slowdown in leasing activity. F&B retailers such as Starbucks, Au Bon Pain, Quattro, Mainland China, Dominos and Harry’s, among others, expanded their operations in Mumbai, Bangalore, Pune and Kolkata.
Rental values remained stable across major markets across the leading cities, barring Pune which exhibited mixed trends. The high street of JM Road saw a slight appreciation (3–4%) due to enhanced demand and limited supply availability; while values of mall developments on MG Road (Pune) saw correction in the range of 6–7% owing to subdued demand levels.
