Commercial realty shows upward trend

Tags: Real Estate
Driven by the positive sentiment after the formation of a new government, commercial real estate, which was hit by the economic downturn, is showing signs of revival.

After a lull of more than two years, office space absorption in the first half of 2014 has witnessed an upward trend.

The latest office market report by global real estate consultants, Cushman & Wakefield said net office space absorption recorded a 16 per cent increase at 13.4 million sq feet across the top eight cities in the first half of 2014 (January-June) compared with a year ago, as supplies declined almost 7 per cent.

Developers are bullish that commercial real estate would continue to grow at 20-25 per cent in 2014 on the back of improved sentiment.

Saurabh Chawla, executive director finance at DLF said, “Commercial real estate was not expanding following the economic slowdown, but the sentiment has changed after elections, resulting in demand for commercial space picking up. Demand for commercial property is expected to grow in tandem with GDP growth.”

Chawla also said demand is expected to increase with the improvement in the US and European economies, as more companies are expected to open offices in India.

DLF has commercial and residential projects across the country.

The highest growth in net absorption was noted in Ahmedabad, up 172 per cent from a year ago, followed by Chennai, up 115 per cent from a year ago. Hyderabad outperformed Mumbai, recording net absorption of 2.3 million square feet, compared with Mumbai’s 1.9 million square feet.

The top three performing cities during H1 2014 were Bengaluru, Delhi-NCR and Hyderabad, representing 57 per cent share in net absorption of 7.7 million square feet, according to the Cushman and Wakefield data.

However, Mumbai’s net absorption for the first half declined 22 per cent compared with a year ago. Net absorption in Mumbai in April-June quarter has, however, improved significantly, increasing 55 per cent, compared with the previous quarter at 1.2 msf.

Prices in most markets remained stable, which also helped in the increase in demand, the report said.

Lalit Kumar Jain, chairman of Kumar Urban Development said, “It is a fact that commercial real estate has finally started to witness demand growth almost after a gap of 24 months. Commercial real estate is cyclical and with the pick up in positive sentiment, it is expected to grow above 20 per cent in 2014.”

Jain said demand growth would be higher in 2014, as the base was very low last year. Kumar Urban Development focuses both on commercial and residential real estate.

The market has been struggling to get back to normal after the global economic meltdown of 2008-09. While residential demand bounced back, the commercial segment was waiting for its turn, experts said.

“In the first half of 2014, we have seen great demand in the commercial sector, as customer sentiment improved with the formation of a stable government. Positive-decision making and strong economic prospect have played a motivational role,” said Bipin Gajra, director at Ellora Group, which has three commercial projects in Navi Mumbai and one in Pune.

Querries for commercial space are almost 40 per cent higher than last year, while demand has grown between 15 per cent and 30 per cent in different markets.

“As industry output is positive and stock market, gold and all other sectors are doing well, we expect demand for commercial space to increase further. If the monsoon revives, we expect to see 20 per cent to 25 per cent growth in commercial real estate in the next six months,” Gajra added.

The company is developing around 10 lakh square feet of commercial space. There has been high demand for bigger office space in the metros and their peripheries. Besides foreign investors, JV projects, IT and Ites sectors have specific demand, boosting demand in tier 2 cities, as well. The queries are finally converting to deals, experts said.

The strong demand has been witnessed mainly in April-June, driven by expansion of IT-ITeS companies at peripheral locations.

Sanjay Dutt, executive managing director for South Asia at Cushman & Wakefield said, office markets have reacted positively to the outcome of the general election, encouraging companies to view the market positively. Office absorption has increased in the first half and is expected to be higher in the second.

“The recent announcement in the Union budget lowering the foreign direct investment limit from $10 million to $5 million will boost investments in tier 1 cities like Mumbai, where property values attract private equity despite their size. Further tier 2 and tier 3 will also see increase in activities by reputed developers, given the attractive valuations,” Dutt said.


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