Corporate realty market starts on a positive note
Going forward the easing of investment restrictions will help in the monetisation of completed commercial assets, increasing liquidity for most development firms in the countryUpdated: Jan 12, 2016 15:32 IST
The year 2015 has proved to be a good year for the corporate real estate sector in India. With the gradual revival in the US economy, a large number of business segments including the IT/ITeS (Information Technology/Enabled services), banking, financial services, consulting and research, saw growth in the country. Of particular importance for India was the growth of shared services firms and e-commerce companies, which expanded their corporate space requirements across the country’s leading cities. While demand from corporate occupiers remained strong, the supply of investment-grade office space remained a challenge.
Demand for corporate office space in India’s leading cities firmed up in 2015, while market sentiments improved to a large extent. A number of leading corporate occupiers moved into quality office developments across leading cities throughout the year; and a key development remained a spurt in office space leasing by online retail firms, particularly in the National Capital Region (NCR) and Bengaluru.
Major trends of 2015
Pre-commitments in under-construction space and built-to-suit: The paucity of available, quality developments saw corporate occupiers increasingly pre-commit to spaces in under-construction projects across leading cities. The quality space crunch in prime markets saw occupiers even considering built-to-suit options in 2015. These trends are likely to continue and grow in forthcoming months.
IT/ITeS drove demand, e-commerce contributed significantly: The IT/ITeS, banking and financial services, and engineering sectors continued to drive demand for corporate office space across leading cities in 2015. However, the e-commerce segment also accounted for significant corporate office space take-up during the year.
Suburban/peripheral micro-markets attracted occupiers: Corporate occupier leasing remained strong in the suburban/peripheral micro-markets of leading cities during the year, owing to the availability of large, investment-grade office spaces in these locations. These districts would include Gurgaon and Noida in Delhi NCR; Whitefield and Outer Ring Road in Bengaluru; Raidurga in Hyderabad, OMR in Chennai, Thane and Navi Mumbai in Mumbai; and Rajarhat in Kolkata, among others.
Office space purchases: The year saw large occupiers in the IT/ITeS, financial and pharmaceutical sectors purchasing their own office spaces, instead of leasing them. This has been a good indicator of multi-national corporations reiterating their faith in the Indian economy.
Rental values witnessed an increase: Rental values of corporate real estate across key micro-markets in the leading cities saw a significant y-o-y increase due to non- availability of quality ready-to-move-in office spaces.
Market Outlook: 2016
With the recent relaxation in Foreign Direct Investment (FDI) guidelines for India’s real estate sector, the government has now permitted 100% FDI under the automatic route in completed projects for the operation and management of business centres. This easing of investment restrictions will now, hopefully, help in the monetisation of completed commercial assets, increasing liquidity for most development firms in the country. This is a tremendous opportunity for foreign investors, and in the long run can significantly boost the share of foreign capital in India’s real estate sector.
Once investments begin to flow into the sector, the supply of new, quality office space would still take some time to come into the market. Given the sustained demand for investment-grade spaces from corporate occupiers, this would keep up the pressure on rentals across key office districts in leading cities through forthcoming quarters. Another major challenge that will need to be tackled in the coming year will be the creation of large scale, sustainable infrastructure across our leading cities.
The growth and development of transit hubs will also be important for the long-term growth of commercial realty in the country. It will become imperative for development firms, moreover, to enter into strategic public-private partnerships with the state for attracting overseas investments into India’s urban centres. Going forward, corporate occupiers will evaluate cities on the basis of sustainable infrastructure and state government policies.
The India office market has witnessed a recovery on the back of an improving domestic and US economy; and the country’s real estate has remained the preferred destination for the corporate occupiers in the IT-business process management industry and the growing e-commerce segment. For most global corporate office occupiers setting up a business base in the country, space take-up strategies will be tied in with their overall corporate strategies, as they continue to off-shore and send knowledge/product based work to India. India will continue to attract multi-national corporate firms owing to its talent pool, scalability and cost effectiveness.
The author is the chairman and MD at CBRE South Asia Pvt Ltd