Anshul Jain, CEO, DTZ India
Economic Environment: Silver lining after turbulence and uncertainty
Economic growth and real estate performance are two significantly intertwined characteristics. It is widely accepted fact that demand for real estate space is drawn and influenced from economic environment. As a result, while the overall performance of Indian real estate over the last 9 months have been cautiously optimistic, particularly in commercial and retail sectors, the coming 12 months are likely to paint a different picture. Continued mirroring of European and American markets by Indian landscape will put significant downward pressure in Indian markets. The Eurozone debt crisis, downgrade of the US economy and inflationary pressures in India are already making the industry nervous, resulting in restrained demand for office space. All this manifesting in a 33% drop in office take-up as reported in Q3 2011 as compared to previous quarter. Additionally, large upcoming supply over the next 18 months will outstrip demand across most cities resulting in pressures on rental and capital values.
However, amid these concerns of turbulent and uncertain economic scenario there is some silver lining. With average GDP growth of 7.7% recorded in first six months of 2011, the Indian economy is projected to grow by 7%-8% in 2011-12. Though lower than earlier estimates of 8.5 – 9% growth in 2011-12, this will be a commendable performance and provide some insulation to Indian real estate from the slowdown. Additionally, prime retail hubs are expected to witness expansion by several brands, both national and international. However, residential sector, which lost momentum owing to high property prices across most cities and increasing home loan interest rates, has emerged as the only exception to this trend.
Office Segment: Cautiously optimistic scenario despite moderation in economic growth
Despite moderation in economic growth, the commercial real estate sector in the country appears to be well placed. Office space take-up between January to September 2011 was recorded at 26.8 million sq.ft. which was up by 23% when compared to corresponding period in 2010. This can be attributed to close integration of commercial real estate with various economic sectors, particularly services vector which are expected to witness healthy growth level in 2011-12. Moreover, the 7-8% of growth expected in industry and manufacturing sectors will provide some additional stimuli to real estate demand.
