Market mantra

Demand for organised retail space will continue to exceed supply in most top markets in 2017

The residential property market may not be doing well, but demand for commercial space remains strong. What is more, it is expected to pick up in the coming days as the economy gathers momentum, analysts predict.
In 2017, the Delhi-NCR and Mumbai markets are expected to continue to be the preferred entry points for global retailers, as both cities have the right mix of target catchments and suitable real estate opportunities.
While there is a strong supply pipeline expected in 2017, demand for organised retail space will continue to exceed supply in most top markets. This will put upward pressure on rentals at major high streets and investment-grade malls, according to real estate consulting firm CBRE.
Sector sources claim demand for commercial space in residential areas is very robust. For example, in the Bhutani Alphatum complex coming up in Sector 90 of NOIDA, commercial space has already been sold out.
Says Ashok Verma, CEO, International Operations, REPL, a real estate consulting firm: “The commercial property market, (which basically means low-cost shutter shops located in group housing societies) is doing well and it is expected to do even better in the coming days.”
Concurs Parveen Jain, president National Real Estate Development Council or Naredco: “The outlook for commercial property market seems to be positive with new policies like Real Estate Regulation Act (Rera) and Real Estate Investment Trust (Reits) being formed. Now because of the arrival of Reits, to attract investment and ease of doing business in the real estate market, the demand may grow specially on the commercial market front for global business companies like IT, manufacturing, food & health products, clothes, multifarious goods and products industries, which need commercial and office space here.”
Optimistically, he adds, “Rera is likely to bring in transparency in the real estate sector and may be able to attract more FDIs.”
For some like Vipul Shah, managing director Parinee Group, “Mixed land use development in the realm of commercial space is the present and future.”

Sant Raj Kasana, CMD, Morpheus Group, says commercial real estate in India is already witnessing a boom in the market due to high demand of office, retail and hospitality spaces.
“This will continue to grow as developers are planning and introducing newer and unique concepts with respect to enhancing the official lifestyle of users, such as providing homely facilities like spa, gyms, yoga centres, jogging tracks, café areas, restaurants and shopping complexes, at a commercial property. Features like these are sure to keep the demand graph rising for commercial properties,” he asserts.
Points out Rakesh Yadav, chairman, Antriksh India Group: “Commercial real estate plays the part of completing the real estate outlook of a destination, which is imperative for the sector and economy to perform and grow.
Kushagr Ansal, director, Ansal Housing, agrees. “Providing commercial spaces will always be an integral part of developing a society and should be thus, kept in sync with housing needs.”
Meanwhile, leasing activity in office space has declined by 25 per cent in the January-March 2017 quarter, compared to October-December 2016, but posted 8 per cent volume growth compare to the same period last year, says Colliers International India.
According to the consulting firm, gross office take-up amounted to 9.3 million sq ft (MSF) in Q1 2017. The market also recorded about 2.5 million sq ft of pre-commitments, signifying healthy demand.

The technology sector continued to generate demand for office space across cities, representing 51 per cent of the total take-up in Q1 2017, followed by engineering and manufacturing at 11 per cent and banking, financial services and insurance pegged at 9 per cent, Colliers said.
The Bangalore market maintained its top position across nine cities despite low vacancy and recorded an overwhelming share of 37 per cent of the total absorption.
Mumbai and Delhi-NCR followed with shares of 18 per cent and 17 per cent respectively in total absorption. Chennai, Pune, Hyderabad and Kolkata accounted for 11, 9, 6 and 2 per cent respectively in the overall leasing volume, the international consulting firm said.
“We expect demand to remain firm in 2017, driven by technology and banking, financial services and insurance companies (BFSI),” Colliers said.
In Q1 2017, the Nikkei/IHS Markit Services' Purchasing Managers' Index rose to 51.5 in the month of March, its highest level since October 2016, indicating expansion.
Oxford Economics has also suggested that India’s composite PMI surged ahead, boosted by growth in output and new orders indicating a positive outlook.

However, increased demand for high skilled work such as automation, Internet of Things (IoT), big data and analytics instead of process based work, may lead to a short-term skill gap and disrupt expansion plan of technology companies in the next 2-3 years, predicts Surabhi Arora, senior associate director, research, Colliers International India.
According to Cushman and Wakefield, international property consultant, net absorption declined 27 per cent to 5.5 MSF in Q1 2017 (Jan-Mar 2017) from 7.4 MSF recorded in Q1 2016, in the top 8 Indian cities primarily due to delays in quality supply during the quarter.
While occupiers maintain a healthy outlook towards expansion and uptake of office space, constraints related to delays in occupancy certificates (OCs) and deferred construction schedules by developers in most cities, led to the significant drop in net absorption during Q1 2017.
The overall supply of office space during the quarter declined by 60 per cent to 4.7 MSF in Q1 2017 from 11.6 MSF in Q1 2016.
Supply plummeted across all cities except in Chennai and Pune. These were also the only two cities that clocked an increase in net absorption during the quarter. The steepest fall was recorded in Hyderabad (75 per cent) followed by Mumbai (74 per cent) owing to approval delays.

Points out Anshul Jain, managing director, Cushman & Wakefield India, “While activity levels in the first quarter has typically been sluggish, this year’s short-term blip stems from lack of quality available stock. Occupiers continue to be optimistic on the Indian market and are now waiting to occupy Grade-A office space at the right locations that will give them a long-term leverage.”
Jain also believes that this may be instrumental in pushing up rental values for high quality office products in the short term.
“Demand from sectors such as BFSI and consulting is likely to remain strong this year, but we do see some curtailment from the IT-BPM sector. Rampant adoption of automation, resulting in potentially lower hiring during the year, could impact space take up by the IT-BPM sector,” he states.
Jain also adds that companies may be on a wait-and-watch mode owing to the protectionist policies that are likely to be introduced by the US.
“We foresee demand to pick up in the second half of the year with uncertainties, due to BREXIT and the US political scenario, easing out,” he points out. According to the consultancy firm, while the anticipated absorption for 2017 is expected to be stable at approximately 32 MSF, most leasing activity is likely to take place in the latter half of the year.
On the supply side, some portion of the forecast supply of 45 MSF during the year could be delayed till the next year owing to delays in completion.