2017 & its promises
In 2017, Indian economy as a whole is making a turnaround and is expected to be counted among the fastest-growing major economies in Asia. 2016 has been a mixed year with a significantly healthy first half followed by a destabilized market, affected majorly by the lethal blow of demonetization towards the end. However, with the introduction of GST and RERA, Indian real estate climate is expected to show good signs of recovery in 2017 – the experts say.
Changes are on their ways
Change is the only constant in life! Indian real estate developers too are adapting to the various changes and reforms that the industry has witnessed in 2016. The industry is fast becoming more professional and transparent. A few of the important policy reforms Indian real estate industry is witnessing are – Real Estate Regulation Act, The Benami Transactions Amendment Act, Implementation of GST, Permanent residency status for foreign investors etc. These reforms are impacting the residential as well as commercial real estate markets in positive ways.
Let’s see where we stand in commercial real estate space -
Source: A CIRIL Report
India now features at the top of the list of preferred destinations for real-estate investment for major institutional investors. The promises for 2017 are likely to be hearty with demand from manufacturing, logistics, consumer goods, IT/ITES and service sectors. A healthy improvement in commercial space leasing is likely to boost demand too. Analysts are expecting an overall 5-10% jump in lease rentals in the forthcoming year. Source: Livemint
Mumbai, Delhi-NCR, Bangalore & beyond
Mumbai: 2016 has been overall a good year for Mumbai commercial micro-markets though demonetization is expected to slow down the transaction activities in 1st two quarters of 2017. Mumbai office market saw total absorption of around 2.75 million sq. ft in year 2016. Overall, the submarkets of Worli, Andheri-Kurla Road, and Central Suburbs constituted 60% of Grade A net absorption followed by SBD and Malad/ Goregaon. In terms of supply, the Mumbai market witnessed supply of around 5 million sq. ft of commercial space. Rental prices will largely remain unchanged in 2017. Demand for office space is less impacted due to demonetization but there will definitely be price correction.
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Delhi-NCR office real estate segment has remained positive and is expected to grow steadily in year 2017. The NCR office market maintains its lead as most preferable office destination with 7.6 mn sq. ft absorption at the end of 2016. Gurgaon remained the preferred choice for opening offices in the National Capital Region (NCR) with 51% share.
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Bengaluru saw highest leasing activity with total absorption of around 11.2 million sq. ft in 2016. Outer Ring Road submarket accounted for almost 55% of the total Grade A leasing, followed by Suburban East (25%) and Peripheral submarkets (10%). Year 2016 witnessed total supply Grade A supply of around 6.1 million square feet (msf). Vacancy remained stable at 9.9%. The city has a robust new supply pipeline of approximately 20.5 million sq. ft. in the next 3 to 5 years. IT / ITeS sector continues to be the major demand driver followed by E-commerce and BSFI.
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Chennai, Hyderabad, Kolkata are among the other cities which witnessed moderate to significant transactions in commercial real estate space. Source: A CIRIL Report
For the investors
With the positive changes happening in the industry in the form of reforms and policy changes, more transparency is underway and that’s definitely going to encourage high net worth individuals to invest in commercial real estate. Investing in commercial space requires much larger investments as compared to residential. This is the reason why traditionally only the investors with deep pockets could have invested in commercial space. However, the scenario is changing fast. Also, an overall positive sentiment and growing confidence can be noticed among the NRI investors because of the business-friendly stand of the central government.
The rental return for commercial properties has traditionally been 8-11% as compared to 2-4% for residential sector. Owing to the rising demand in commercial space investors can expect higher capital appreciation as well as recurring rental income.
With the leading developers foraying into commercial space with renewed vigor, it would not be wrong to say that now is the right time to invest in commercial real estate.