By: Hans Vrensen, Global Head of Research, DTZ and Dominic Brown, Head of South Asia Research, DTZ
Track2Realty: 2012 presented the real estate sector with an array of challenges. Valuable lessons were learnt as the real estate markets dealt with the uncertainties surrounding the local and global economic fundamentals. Many of these uncertainties persist in 2013.
DTZ is now embarking upon a new journey this year and putting risk back into perspective is the war cry. DTZ takes the lead in powering a strategic dialogue through the findings of Outlook 2013 Report.
Key Findings of Outlook 2013 Report:
Global economic and capital market backdrop
The continuing uncertainty surrounding the European sovereign debt crisis is leading to moderate GDP growth forecasts in the short and medium term. In our interconnected global economy, austerity measures across Europe are hurting European imports from Asia and the US.
Asian growth remains at better levels in the medium term with China leading the way and Japan lagging. Even Europe returns to growth in the medium term under our base case.
With regard to India, even in the downside scenario, the GDP growth looks strong and way above the APAC’s GDP growth rate in the same scenario. Moreover, there is higher probability of the base case emerging as the “more likely” scenario in the medium to longer term which bodes well for the Indian economy and consequently, for the demand for commercial real estate.
This is because a sizable portion of commercial real estate absorption in India is still accounted for by the IT sector. The order books of the IT sector are largely dependent on the US and Euro Zone’s economy which appear to be stabilizing in medium to long term.
APAC occupier outlook
Although still behind North Asia, South Asia’s growth in total occupancy cost per work station has grown at a faster pace than the global average inflation between the fourth quarter of 2011 and third quarter of 2012.
Costs are expected to rise with pace in India as improved economic indicators will filter through to occupier markets. In fact, all markets with the exception of Mumbai are anticipated to see costs grow with a rate above the South Asian average growth of 4.5%. The strongest average annual growth of 8% is expected in Pune. Only Jakarta is set to see stronger growth in this region.
Markets in the Asia Pacific region offer the most affordable workstation costs than markets in our sampling in Europe and the US.
Chennai and Pune could lose their tag of affordable markets – Indian cities currently dominate the list of most affordable markets in Asia Pacific. However, you’ll notice that Chennai and Pune are expected to see strong rental growth going forward and could lose their position in the top five.
Delhi is the most expensive market – Interestingly, Delhi is the most expensive market in the per sq m ranking, whilst Perth slides to number four. Delhi is more affordable on workstation basis due to a low space utilization standard per workstation. Occupiers in Perth allow for more space per employee.
Pune and Hyderabad rentals to see double digit growth – Rents in Pune and Hyderabad all rise at double digit levels. This is something occupiers should be aware of
Indian market update & occupier survey
24% decline in office space absorption in 2012 – the net absorption did not improve measurably over the year. Again, this is a reflection of low job growth, which will continue through H1 of 2013. This also underscores the inter-connected nature of most regional economies of the world having a bearing on the absorption of office space in India. 2011 saw an absorption of 35 mn sq ft whereas the year 2012 saw an absorption of 27 mn sq ft – a drop of 24% y-o-y.
Vacancy levels continue to remain above historic average levels – Subdued demand owing to economic uncertainty and mismatch between attributes and location of space offered by landlords and those sought by tenants
IT Sector to dominate office space take-up – IT sector in India has seen a progressive decline in its contribution to total absorption. On the contrary, BFSI has seen its contribution increase progressively. In 2013, IT will continue to be the dominant occupier in total absorption. The recent Banking (Amendment) Bill passed by the Lok Sabha in December 2012 will be another shot in the arm for the BFSI sector. This Bill aims at attracting foreign investment and paves the way for Reserve Bank of India to issue new banking licenses to private sector. This move will further spawn demand for commercial real estate by the BFSI sector and we will see the contribution from this sector increase in the coming years.
Bengaluru is the most content with present rentals – the nature of the commercial real estate scenario in the city with good volumes of supply coming which keeps the rentals on a stable ground
Occupiers in Mumbai who feel that the rentals are not fairly priced – This is possibly because of the nature of the commercial real estate scenario in the city which does not normally see good volumes of supply coming which keeps the rentals on an upward trajectory
Micro-markets to largely witness subdued rental growth – On a micro-market level, Bengaluru PBD – comprising Outer Ring Road, Whitefield, electronic City and Banerghatta Road – is likely to remain a sought-after destination and will have moderate growth in the rentals in 2013. Whereas the other important micro-markets of Bengaluru, Mumbai and Delhi NCR are likely to witness subdued rental growth in 2013. This is a reflection of builders re-aligning their projects and keeping rentals in check to encourage occupiers to take-up office space.
