Track2Realty Exclusive: India Outlook remains positive
Though the Indian economy recorded one of the lowest growth rates in recent years in 2012, indications are that the economic growth rate may have bottomed out and is likely to improve from the current levels over the next six months or so.
With policy makers undertaking structural reforms to put the economy back on higher growth trajectory, the commercial office real estate sector is also expected to benefit directly and retains a positive outlook over the medium term.
The recent steps taken by the union government, particularly on relaxing norms on FDI in aviation, broadcasting, multi-brand retail, insurance, pensions apart from various other measures intended to provide a more stable policy regime to investors, are likely to create demand for more office space over the next few quarters.
In addition to this, the government is likely to take a decision on issuing new banking licenses in the next few months which would have a significant direct impact on the demand for offices.
Even in the face of lower economic growth business performance across a vast majority of industry segments, particularly in case of firms in the private sector, do not seem to have been affected considerably during year. Hence, once the inflationary pressure is contained, the interest rates are likely to be revised down, bring more liquidity to the markets, and thus increasing economic activity.
The business outlook at some of the largest occupier firms is likely to remain robust over the next year, which in turn would create higher demand for office space.
India Retail 2012 (Malls)
The total mall space stock across three major cities (Delhi NCR, Mumbai and Bengaluru) stood at approximately 46 million sq ft at the end of Q3 2012. The overall vacancy level currently stands at 10% across these three cities.
The growth in mall rentals remained modest through 2012, in spite of the more recent surge in enquiries. The stability in mall rentals can be attributed to large upcoming supply coupled with enough availability in operational malls to cater to existing demand across major cities.
In the current cautiously optimistic economic environment, retailers are attempting to rationalize their input costs through leasing smaller space and focusing on established markets.
The recent policy reforms, allowing up to 51% Foreign Direct Investment (FDI) in multi-brand retail, provided the much awaited stimulus to the Indian retail sector.
Though the FDI limit in single brand retail was increased from 51% to 100% at the beginning of 2012, but it has so far failed to translate into a perceptible increase in demand for retail. This is reportedly due to the limiting clause of 30% sourcing from small Indian firms.
In the recent wave of reforms, this condition was relaxed and the sourcing can now be done from Indian companies of any size, and is being viewed as a positive move for the sector.
….to be continued
