Is it the right time to expand biz in property market?

Published: June 22, 2009
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The good news is that the commercial segment in real estate is upbeat and demand is picking up. While initially, the first quarter of the calendar year saw a major decline in rental values in commercial spaces, the process of stabilisation has now begun over the last few weeks.

Commercial PropertiesCompanies, which were earlier hesitant to set up shop or expand are also looking at viable locations to close deals.

A study by global real estate consultancy Jones Lang LaSalle Meghraj (JLLM) shows commercial rentals across all major cities reaching stability after an overall downward movement in the second quarter. According to the consultancy, an absorption between 4-5 million square feet of commercial space was witnessed in the first quarter of 2009, which was higher than 4th quarter of 2008.

Abhishek Kiran Gupta, head - research, JLLM says that in the first quarter of 2009, there was a marked decline in commercial rental values in Mumbai and New Delhi, with Kolkata, Hyderabad, Chennai and Pune following on a scale of magnitude.

“Prime areas which were seeing a fall in rental values till the start of the second quarter are beginning to display increasing constancy after a correction of between 30-40%. If we see any further fall in rentals values, it will not exceed 2-4% until stability is attained in the next two quarters. This is a good time for negotiating and locking in good rentals.”

Kaustuv Roy, executive director, Cushman & Wakefield India says that with commercial rental values having corrected significantly over the last 12 months, there has been some renewed interest from occupiers. “Noticeably we are seeing corporate occupiers taking positive steps concluding their space acquisitions at a faster pace trying to get the best value deals at the time when the prices are lower.”

Developers, in fact, feel that the correction in commercial rentals has given companies the option of moving to superior quality commercial spaces in more viable locations. That, in turn, has helped to move the market in a positive direction.

“Demand and supply considerations dominated the price movement during the initial months of 2009. With the market finally bottoming out, enquiries have restarted and the commercial rental market is looking up,” feels Rajeev Rai, VP (corporate), Assotech.

Others too are of the view that although the rentals had fallen, the market is now firming up. “Deals have started to happen now. We alone have leased out 1,40,000 sq ft in the last two months in Gurgaon. The demand undoubtedly is picking up,” asserts Gaurav Bhalla, director, Vatika Group.

Many feel that the correction in the market rentals was essential and had reached unrealistic levels which was further affecting viability of various businesses. Hence the fall in rentals has had a positive impact.

“More realistic rentals have seen existing players expand their businesses and move into more lucrative locations. A wise thing to do now is to lock in as much commercial space as required today at reasonably good prices for businesses to cash in when the market peaks again,” reasons Ajay Midha, VP commercial, Raheja Developers.

With more supply expected to come in, it is likely that the commercial segment will get a further fillip. “The demand today is primarily from the IT, pharma, retail, and finance companies. It is expected that about 198 million sq ft of Grade A commercial office space will see completion by end-2011 in the top seven metros of India. Most of this supply is expected to go to the IT/ITES sector, both IT SEZs and IT Parks, implying a definite imbalance in the planning of projects,” says Vijay Jindal, CMD, SVP Group.

In some more good news, the negative forces at play in the downturn, high rentals, a risk of oversupply and lack of demand - are all set to change, according to Mr Gupta of JLLM.

“In the early part of 2010, rentals would have become consistently affordable. The risk of oversupply will be subdued because the future project pipeline will be far more controlled. We see demand picking up considerably in 2010. However, we do not expect a significant number of new projects to be announced, since there is enough future supply, and developers will concentrate on the completion of projects at hand. Because of the high rate of vacancies that will still exist at this point in time, the return of demand will not have an immediate effect on rentals. We anticipate that an upward trend will become visible after another 6-9 months, towards the end of 2010,” he adds.

Source: Economic Times


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