Real Estate Shows Signs of Stability after a Long Freefall

Published: July 14, 2009

Commercial real estate transactions, considered a key indicator of economic activity, is showing first signs of stability after a free fall during the early part of this year. According to real estate consultants, the worst phase for the industry seems to be over as lease rentals both in peripheral areas as well as the central business district (CBD) are showing signs of settling down, in addition to deals getting clinched.

Transaction data show that Chennai and its adjoining areas witnessed more than 1.95 million square feet of property deals in the first half of 2009. The whole of 2008 witnessed transactions for around 4.90 million square feet. “We do not want to call it recovery as yet, but at least we can say the downturn has been arrested. In our view, the worst seems over. Property prices are showing signs of holding on, and it may not fall further,” said Rajesh Babu, Chief Consultant, RECS Group a real estate consultancy, which managed the largest deal of RBS in India Land IT Park for 3.50 lakh square feet this year.

For instance, around Guindy (in South Chennai), lease transactions were sealed for Rs 45 to 46 a square foot. During the peak of real estate activity, transaction rates were around Rs 55 a square foot. Likewise in the CBD of Chennai, transactions were concluded at around Rs 60 a square foot this year, while the peak rates were around Rs 75 a couple of years ago. “Absorption till the end of June stood at approximately 1.95 million square feet, similar to H1 2008 and approximately 29% lower than the peak absorption levels achieved in H1 2007. The largest quantum of absorption has taken place in the suburban areas and within the suburban markets, Manapakkam, Ambattur, Perungudi and Taramani saw the highest demand for space due to the robust infrastructure, strong connectivity, proximity to major markets, and rational rentals,” N Hariharan, General Manager, Cushman and Wakefield international real estate consultants said.

“We haven’t crossed the woods as yet. But, clearly in the past one month, we have been getting enquiries showing first signs of demand trickling in. We need to wait and watch if the demand sustains and breaches the five million square feet mark this year,” industry sources said. Even as the industry is trying to project a revival face, clearly there is over-supply in select pockets like Old Mahabalipuram Road (OMR). “On the IT corridor, clearly there are supply overhangs. Roughly four million square feet are vacant and another two million square feet are under development. That pocket of the city remains weak,” sources added.

Source: Indian Realty News

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