By: Anshuman Magazine, CMD, CBRE South Asia
Track2Realty: After a better than expected growth of 5.7% during the April–June quarter, India’s GDP growth slowed down to 5.3% during July–September, mainly due to sluggishness in manufacturing growth and a slowdown in agricultural output.
The q-o-q drop in economic growth came amid a time when India’s consumer price inflation for October fell to a historic low of 5.52% (even below the central bank’s target of 6% for 2016). Even as growth moderated in the last quarter, India’s manufacturing PMI for November was reported to be at a two year high; and an improvement was noted across all major sectors.
During its fifth Bi-Monthly Monetary Policy Review in December, the Central Bank kept key policy rates unchanged, as was widely expected by industry analysts. Explaining its rationale behind the policy stance, the Reserve Bank of India clarified that while retail inflation had decelerated sharply, there was still uncertainty about a favorable base effect and the full impact of a deficient monsoon on food prices.
At a juncture when housing sales across most major cities saw a drop and retail inflation dropped to a historic low, the decision to hold on to key interest rates may be viewed as a lost opportunity to trigger a revival across the country’s flagging residential markets. The residential sector would have significantly benefitted from a rate cut, contributing towards reducing borrowing costs while increasing developer liquidity and boosting buyer affordability. It would also have encouraged potential home buyers to enter the market, reviving declining residential sales and effecting an increase in transaction volumes across leading cities.
Office space update
The office market reported signs of improvement in the month of November with numerous transaction closures for small and medium format office spaces by corporates for their consolidation and expansion requirements. However, a few big ticket transactions (above 100,000 sq. ft.) were observed in Gurgaon, Mumbai, Bangalore and Hyderabad.
As an indication of improved market sentiments, transaction activity grew by about 35% on a monthly basis. Led by Bangalore, Mumbai and Hyderabad, the cities represented around 70% of the total space transacted during the month. Back office operations continued to lead the demand for office space, with more than 90% of total office space leased for back-office or a combination of back-office and front office operations of various corporates.
In addition, SEZ developments in Bangalore, Hyderabad and Chennai also saw healthy take-up, largely by IT/ITeS and telecommunications majors, among others.
Owing to availability of quality office developments with larger floor plates, most of the demand remained concentrated in the peripheral and suburban regions of leading cities. Occupier interest remained strong in micro-markets including Gurgaon in the National Capital Region; Andheri East, Bandra–Kurla Complex, and Powai in Mumbai; the Outer Ring Road and Whitefield in Bangalore; Madhapur (IT Corridor) and Nanakramguda (Extended IT Corridor) in Hyderabad; Mount Poonamallee Road and IT Corridor of Perungudi and Sholinganallur in Chennai; and Yerwada, Baner Road and Kharadi in Pune.
The IT/ITeS sector continued to remain the major demand driver for office space, accounting for nearly 34% of total transactions reported during the month. Other dominant sectors included banking/financial services, manufacturing and engineering, construction, automotive, research and consulting.
Rental values remained largely stable across most micro-markets of leading cities. However, subdued demand levels resulted in a decline in rental values in the Kolkata Central Business District (CBD). Conversely, values in the Pune CBD appreciated slightly owing to strong occupier demand.
Housing market update
Delayed monetary easing by the Central Bank came across as a lost opportunity for the housing market during the month. Housing demand continued to remain subdued, resulting in a number of developers deferring new launches.
Most new project launches were in the mid-end and high-end segment, majorly concentrated in micro-markets such as the Greater Noida Expressway in Noida, Mulund and Andheri in Mumbai, Whitefield and Mysore Road in Bangalore, Egattur/Karapakkam, Avadi and Anna Nagar in Chennai, the peripheral markets of Kharadi, Baner and Kothrud in Pune, and New Town and Rajpur in Kolkata.
In terms of project sizes, most of the new launches in Pune and Chennai were small-sized (lesser than 250 units), while a couple of large-sized developments (500–1,400 units) were launched in Bangalore, Mumbai and Kolkata. Capital values remained largely stable across micro-markets during the month due to existing levels of unsold inventory.
Organized retail space
November witnessed strong demand from both domestic and foreign retailers, largely led by food and beverage (F&B), fashion apparel and accessories segments. Although Delhi, Mumbai, Bangalore and Hyderabad saw robust expansionary demand, sentiments remained cautious in other cities during the month. On the supply front, Bangalore saw the completion of two mall developments—MSR Elements Mall on Thanisandra Main Road and Vaishnavi Sapphire Mall at Yeshwanthpur.
Burger King was the new retail entrant to make a foray into the Indian market, opening its first outlet at Select Citywalk in New Delhi, followed by Oberoi Mall (Goregaon) in Mumbai. Burger King India, in its first phase, plans to open 12 outlets in Delhi and Mumbai in the coming months. New Delhi also witnessed Italian luxury goods brand, Bvlgari, opening its first flagship store in the country.
In addition, retailers such as Brooks Brothers forayed into Mumbai; while Forever 21 opened its first outlet in Bangalore. Additionally, retailers such as Zodiac, William Penn, KalyanJewellers, Biba, Health & Glow, W, Orra, among others, expanded across key high streets of Mumbai, Bangalore, Chennai and Hyderabad.
During the month F&B retailers—Starbucks, Johnny Rockets, Krispy Kreme, Dunkin Donuts, Nando’s, Pizza Hut, Sassy Spoon, Lazeez Restaurant, and Harry’s—expanded their operations across Mumbai, New Delhi, Bangalore, Pune, Chennai and Kolkata.
Rental values remained stable across major markets in all leading cities, with the exception of MG Road in Pune, where mall developments witnessed a correction on a monthly basis in the range of 3–4% owing to subdued demand levels.
