Office markets picking up

PROPERTY TRENDS

The annual year-end report by global real estate consultants Cushman & Wakefield indicates total commercial space absorption of 32.65 million sq.ft. in major Indian cities, which is a 23 per cent increase from the last year’s absorption of 27 million sq.ft. Fresh absorption formed a significant contributor to the overall yearly consumption numbers accounting for 91 per cent (30 million sq.ft.). Bangalore continued to witness the highest space take-up in the country (9.9 million sq. ft.), while Hyderabad (96% over last year) saw highest growth in absorption followed by NCR (42% over last year). 

Executive Director, Occupier Services, Cushman & Wakefield India Sumit Rakshit says, “the pre commitments are back and it is a healthy indication of the revival of the office markets. This also signifies that the corporate sector has been actively planning their expansion strategies which were deferred earlier due to the unfavourable economic environment. There is also a shift in demand for space in SEZ developments where major pre commitments have been recorded. It is expected that the demand will continue to rise throughout the coming year which will also see an increase in construction activities.

Abhishek Kiran Gupta, Head - Research & REIS, Jones Lang LaSalle India adds, “the year 2011 will be a strategic window of opportunity for occupiers and investors, when rents and capital values in most of the micro-markets would be at their cyclical bottom and remain undervalued. Several markets have already shown signs of steady revival in terms of strengthening of demand for office space as well as an increase in capital market transactions. We forecast the absorption of office space across the top seven cities of India to grow nearly 1.8 times from 19.6 million sq ft recorded in 2009 to 35.7 million sq ft in 2011.

Several markets which were dormant during 2010 with respect to property rates will register an appreciation in valuations. The prime markets of Mumbai, Delhi and Bangalore are ahead in the property cycle in terms of transactional volumes and should be the first to register rental growth in 2011. However, the oversupplied suburban markets might still feel the pressure of inadequate demand levels and will be late to recover. Adequate volumes of office supply will keep hitting the markets every quarter, keeping the segment interesting for occupiers as well as investors.”

Demand-supply nexus

The commercial or office segment had built up substantial capacity right from 2007, and owing to global crisis of 2008 and subsequent withdrawal, the sentiments were badly hit owing to oversupply.

Last year as well as current year saw some semblance of normality limping back on the back of rising growth in emerging markets owing to good GDP growth. To some extent the capacity utilisation is moving up steadily, but are not near levels wherein demand exceeds supply.

Opines Satya Prabhakar, CEO, sulekha.com, “the demand for commercial/office space continues to be robust. The recent study by CB Richard Ellis continues to show a robust increase of 50 to 55 million sq ft of space being added and consumed in all major metros/cities.

Malls will also move closer to 300 malls in the next two years, compared to 200 that are presently live. While the supply is slightly ahead of the demand, these will work themselves out in the next two to three years, as investors and actual users of commercial/office property utilize new/recently built properties.

This robust environment of new offices and new malls combined with fast resale of older office properties is also seen on internet sites where increasingly large properties are being sold or leased.”

Still there are vacancies, but one heartening feature is that the deals are happening for leasing or outright sale, albeit at lower rates, wherein developers are eager to have the cash flowing in despite payback stretching far beyond original estimates.
Says Ravindra Pai, Managing Director, Century Real Estate, “As the economy is gradually coming out of recession, we should see the demand for commercial and office space picking up.”

“Typically, commercial/office space will lag residential demand as the companies take more time for expansion/capex decisions.

“However, strong growth in IT will ensure good commercial off-take, especially in cities like Bangalore.”

Presently supply is slightly ahead of demand on a totality perspective.

“However there is a differentiation with respect to quality of offerings which entices the investors to commit, so also the need to be present in emerging markets, with India being relatively a better growth story. Further considering the global awareness of climate change also drives demand for eco-friendly green buildings, which is sought after not only to meet the green requirements, but such approach also reduces operating costs especially energy costs in the long run. Given this fact, there is tightness in supply of such green spaces, and any available space meeting such requirements is picked up quickly. Thus the market is maturing slowly to respond to the needs of end users in a more rational manner, instead of crowding the investor with a surfeit of options,” says a spokesperson from Express Avenue.

Adds Shashank Agrawal, Director, IndiaCube.com, “builders like DLF and Unitech have major chunk of revenue coming from corporate leasing as all their projects are strategically located i.e. near airport, good road connectivity etc. Multinational companies and IT companies typically prefer to lease built-up space while Indian companies prefer to invest in property for their own. In appearance, the workplace will have fewer walls, less closed cubicles and more open spaces, more movement and more ease.”

New trends would be going green and use all the natural elements to enhance functionality of the building. And also end users are looking at more professional management of the buildings in terms of maintenance so that it results in better productivity.

Fully managed infrastructure is also being sought for as the investors look for flexibility in scaling up or scaling down quickly to meet any unforeseen circumstances. “The newest trend which the industry has witnessed is the increasing awareness about green and clean environment with things like green buildings, providing bigger green space for healthy living.

The developments marks that a balance between the number of residential and commercial projects is there because of the increase in demand for office space /commercial space,” says Shah Alam, MD, Purvanchal Group. Sulekha.com has a new model of working with a few MNC real estate agencies on a revenue sharing deal for commercial properties - across both sale and lease transactions.

This is an industry leading initiative where the website brings its strength of vast number of real estate buyers / commercial property users to match them with a vast number of listings given by these MNC agencies.

This has happened in a larger scale in 2010 for the first time and promises to reap great returns for all parties concerned in 2011 and 2012. This allows MNC real estate agencies to save costs on sourcing new buyers and investing in a pure ROI based internet advertising approach - in contrast to paying for clicks at search engines.

“Commercial or office space in our country has always been in great demand. India is now the hub of all the big MNCs of the world which also brings a huge demand of office space along with the growing number of employees strength. The two factors which works for any office space are state of the art amenities and along with connectivity.

The recent surge in the development of new office spaces by various real estate companies has received a positive feedback from all the corporate / MNCs. India has always been and will be the place of interest for MNCs because of cheaper and skilled labour,” says Deepak Kapoor, Director, Gulshan Homz.