By: Anshuman Magazine, CMD, CBRE South Asia
Track2Realty: The month of October saw the government easing Foreign Direct Investment (FDI) norms to boost India’s construction sector. The announcement is expected to widen the sector’s investor-base by allowing FDI in smaller projects of 20,000 sq. m. instead of 50,000 sq. m. from firms with capitalization of US$5 million instead of US$10 million.
Likely to encourage more FDI, especially for mid-sized financial institutions, the decision will also encourage new projects in prime areas of large cities and in tier II towns.
By making smaller-sized initiatives more feasible, the FDI rule revision might also increase developers’ investment options and drive development in smaller cities, where investors previously found it challenging to source suitable developments sized 50,000 sq. m. and above. The real estate and construction industry is starved of funds.
What it requires at the moment is an injection of capital for infrastructure and development. All central government efforts to increase capital flow in these areas can only help the real estate and construction sector in particular, and the economy in general.
Office space update
The month of October saw healthy leasing activity, with back office operations leading office space demand at almost 90% of the total office space leased for back-office or a combination of back-office and front office requirements of various corporates. Although the majority of occupier demand was for small to medium-sized office spaces, a few big ticket transactions took place in Bangalore, Chennai and Delhi too.
Leasing activity remained upbeat with Bangalore leading the pack, accounting for almost 60% of the overall space transacted during the month. A few large-sized transactions (above 1,00,000 sq. ft.) were finalized in the city by leading corporates from sectors as diverse as IT/ITeS, banking, healthcare and manufacturing/engineering.
All of these transactions were for SEZ spaces in the micro-markets ofthe Outer Ring Road (ORR) and North Bangalore. Delhi National Capital Region (NCR) and Pune were other leasing markets that saw strong transaction velocity. As a matter of fact, Bangalore, NCR and Pune accounted for about 75% of the total space transacted during October 2014.
Occupier interest remained strong in the micro-markets ofthe ORR and off-central areas of Ulsoor Road and Koramangala in Bangalore; Gurgaon in the NCR; Andheri East, Bandra–Kurla Complex, and Thane in Mumbai; IT Corridor in Hyderabad; Viman Nagar, Yerawada, and Hinjewadi in Pune; and at Ambattur and the IT Corridor of Taramani, Perungudi and Sholinganallur in Chennai.
Demand was mostly driven by IT/ITeSfirms for their expansion and consolidation requirements. Rental values remained largely stable across all micro-markets of leading cities. Sectors such as IT/ITeS, banking/financial services, manufacturing and engineering, construction, and consulting and research continued to drive demand for office space.
India’s fledgling e-commerce segment also saw two large-sized transactions from e-retail majors,Snapdeal and Myntra, in Delhi and Bangalore—taking office space consumption by this sector to an all-time high in the Indian market.
Housing market update
The month saw a decline in the number of new project launches across leading cities. Developers focused on completing existing projects and delayed new launches owing rising unsold inventory. Housing sales remained muted even during the festive season, as a cautious buyer sentiment rode over discounts and attractive marketing offers. This is perhaps a signal that prevailing high property prices and high interest rates may have prolonged the stagnation in the residential market.
On the supply front, Kandivali, Malad, and Thane in Mumbai; the micro-markets of Off-Hennur Road,Yelahanka Main Road, and Sarjapur Road in Bangalore; and the peripheral markets of Kharadi, Wagholi and Kothrud Annex in Pune, attracted new launches in the mid-end segment. Restrained demand, coupled with supply pressures, led to stableproperty prices across most housing markets across the country.
Organized retail space
October saw a healthy mix of expansion and new store openings from domestic and global retailers. Retailers from the F&B, apparel, accessories and electronics segments continued to remain active during the month. High streets remained the favored destinations for leading retailers for their entry/expansion strategies across leading cities.
Mumbai, Pune and Hyderabad saw robust expansionary demand; however, sentiments remained cautious in other cities during the month. Owing to limited space availability in the established highstreets of MG Road and Camp in Pune, most retailers actively explored options in the Western Corridor of Aundh, Baner, Hinjewadi and Pimple Saudagar.
In terms of new brand entrants, F&B retailer, Krispy Krème, and luxury apparel brand, Stefano Ricci, forayed into Mumbai; while apparel retailers Mustard and Kudos, and footwear retailer,Rocia, opened their first outlets in Pune. Kolkata also saw the opening of Café Story on Eglin Road during October.
Starbucks strengthened its presence in southern India with the opening of its flagship store at Jubilee Hills, Hyderabad, totaling its retail presence to 58 outlets across six cities in India. In addition, Starbucks plans to open another store in Bangalore in the coming months. Rental values remained stable across major markets of leading cities, with the exception of Central Mumbai, where mall developments saw a slight rise owing to an increase in retailer demand during the month.
