Gaining Ground

After a lull last year, demand for commercial property is steadily rising and is expected to thrive in the coming months on account of steady enquiry levels, coupled with strong leasing activity. Realtors and developers feel market conditions are improving in the present quarter of the current fiscal.

Enquiry levels have increased by around 30 per cent compared to the last 6-7 months. It is a good sign, said a city-based broker. “There are about 50 transactions a month currently against 10-20 deals executed per month six months ago,” added the broker.

The eastern region has seen a greater percentage rise in both rental and capital values over the previous quarters compared to the other parts of the country. “It is expected to witness a large influx of supply to cater to the increasing demand from all segments. The increase in overall market activity in the region will provide further impetus to the growth of the eastern region,” said Kaushlendra Singh Sengar, CMD, Incubators Trading Gurukul, a market research firm flats in noida.

Commercial developments in the eastern region helped to build a favourable scenario for retail development. Rising income levels and exposure to international brands have raised aspirations of consumers who now demand a complete shopping experience, said Prabhakar Kumar, managing director, Nice Properties.

Some people are now negotiating 15,000-40,000 sq ft deals too.

Kumar said in the eastern region many big brands are yet to come. “The companies could not get space in the desired location in the last few years, he said.

“Demand for office space has shot up of late. With the revival in industries and the telecom sector witnessing rapid growth after issuing of new licences, our hopes on commercial real estate have been resuscitated. New companies need space for office and new call centres,” he said.

However, Abhijit Das, founder and managing director, Lemongrass Advisors, said: “The commercial real estate market in Kolkata and the eastern region has been comparatively slow, like the rest of the county now.”

In 2013, around 56.1 million square feet of office space will be developed and 45.9 million square feet is expected to be absorbed in India, JLL said. While from 2011 to 2014, demand is estimated to be approximately 160 million sq ft with a compounded annual growth rate of over six per cent.

Prices, which dropped 35-40 per cent in most markets after the global meltdown, bottomed out. This would offer investors a good opportunity to buy into commercial real estate, analysts said.

Lalit Kumar Jain, president, Credai said: “After the slowdown, not many new projects had kicked off. Consumption of 40-50 per cent of the property has taken from the old stocks. All the stocks will be exhausted soon.”

Talking about the current trends, brokers said individuals are increasingly investing in commercial space. At present, institutional investors account for 70-80 per cent but in the coming years, with surplus money and options there would be a huge demand for smaller office space.

“The office retail segment, once the domain of institutional investors and high network individuals (HNIs), is increasingly seeing a demand from retail investors. The demand for captive use of office space will increase by 20-25 per cent in the coming years,” say analysts.

The next few years will see a quantum spurt in the services and knowledge sector, opening up tremendous opportunities for retail investors, said analysts.

Many developers, in cities such as Mumbai, are offering smaller units of space (as small as 500-1,000 sq ft). Investors are now considering options in free-standing high street outlets or shops in malls, Kumar added.

Talking about the Kolkata market in particular, developers said the present situation of proper Kolkata is saturated. There is hardly any land left for developing structure. Going forward, commercial real estate in the CBD area of Park Street, Camac Street and Theatre Road will continue to witness steady enquiry levels, said Champalall Baid, director, Champalall and Co, adding that the outright sale value is likely to go up by 15-20 per cent in the next six months and rents in the same line in the CBD (central business district) area in the absence of lesser new supply.

“We expect the Kolkata market to absorb around two million sq ft in the current year. Kolkata as a market is adding huge amount of space and hence vacancy levels are expected to be high in the next two quarters,” Das said.

Prices for commercial property in central Kolkata have already appreciated,

Now there are a host of options for commercial space - on EM Bypass, Sector V and the Ruby Connector.

“The Kolkata office market has witnessed a revival in sale and lease transactions and will continue to do the same,”Agarwal said.

Availability of large grade-A spaces at reasonable rates have made the Kolkata SBD area office market buoyant and it is expected to remain upbeat in the coming months. Relocation of old business houses from CBD to SBD areas will continue to increase in the coming quarters.

However, when we talk about Salt Lake and Sector V, which mainly house IT and ITeS companies, supply will exceed demand in the coming years as more office space will be created by then. The market will crash and tremendous pressure will be seen on the pricing, resulting in stable rentals in these locations, say experts.

Continued completion of office space in New Town has resulted in an increase in the vacancy rate. The average grade-A vacancy rate at New Town stood at around 43 per cent with no grade-B supply at present. The Salt Lake Sector-V experienced average vacancy rate in grade-A and grade-B supply at around 30 per cent,” said Pawan Agarwal, director, NK Realtors.

There is more demand for commercial spaces in the non-IT sphere,” said Nirmal Lunawat, executive director, Forum Group. “Around 2.5 million square feet built up area is lying vacant as IT global demand is going through a recessionary phase. The bare sale price per sq ft in Rajarhat hovers around Rs 30-Rs 50 and the plug-in plug-out facility is available in the range of Rs 45-Rs 70.”

Sources on the condition of anonymity said space in Techno polis, Godrej Waterside, Infinity Towers are lying vacant.

There are some who would not want to be too optimistic of the situation and would only hope that the market would be steady. The market is showing signs of rising demand for office space, especially in the outskirts but buyers are still price-conscious, it is learnt.

“Government support is required for speedy approvals and clearances from concerned departments to boost demand for commercial real estate,” said an expert.

However, with construction of a 90,000 sq ft commercial project by the Belani Group at Woodburn Park, another one lakh sqft commercial project at Theatre Road by the Heritage Group, Diamond Heritage, a B+G+ 14 commercial projects at Strand Road, the supply dynamics in the CBD area will dictate the rental movement in the coming years, the spokesperson from 99 acres said.

In the eastern region, rentals at present are in the range of Rs 60-70 per sqft. “The brands which forayed into the Kolkata market are now looking at smaller cities like Patna, Ranchi, Jharkhand, Guwahati and Bhubaneswar for expansion,” said Kumar.

Sources said around 3.5 lakh sqft in mall development is under way in Rourkela.

There is good demand in tier II cities like Asansol and Dhanbad as they are witnessing construction of  malls and multiplexes.

Talking about Delhi and the NCR region, Raj Sharma, MD, Best Property Deals, said: “The interest of MNCs and SMEs in office space is the reason why developers are concentrating on commercial projects. Connectivity with Delhi through the Yamuna Expressway is considered a very positive point.”

Greater Noida and Noida have witnessed tremendous growth in the commercial sector in the past couple of years. Property value has increased by 12-15 per cent across the city. Going by market trends, Greater Noida seems to have immense potential of becoming a commercial destination in NCR, Sharma said.

Bangalore and Hyderabad are expected to outperform due to good pre-leasing and affordable rentals. In Mumbai, however, prices have crashed, sources said.Publishing Link.... http://bestpropertydeals.co.in/News/21/Gaining-Ground