Growing eurozone crisis is all set to affect the Indian real estate. It may sound like drawing a parallel between Indian office space prices and what’s happening in North America and Europe, but it has not only dried up the foreign equity participation in the sector in the country, the developments will also affect demand of the products.
According to a recent report by Jones Lang Lasalle, a real estate consultancy, nearly 50 percent of the demand for investment grade office space in India is contributed by the information technology/information technology-enabled services sector.
More importantly, up to 90 percent of revenues of the IT and BPO (Business Process Outsourcing) sector come from North America and Europe, both of which are struggling economically. The US is still limping back to recovery, while Europe is trying to contain the spillover effects of the sovereign debt crisis.
Furthermore, the real estate consultancy noted that over 70 percent of the demand for investment grade office space is contributed by firms that are headquartered overseas. “Many of them thrive on domestic demand. However, demand contraction in those countries will definitely force them to exercise caution,” the note added.
The inevitable conclusion: demand for office space is expected to remain muted in 2012.
