Roundup: Indian commercial real estate suffers from economic slowdown
- Arup Chanda
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E-mail Xinhua, September 4, 2012
Roundup: Indian commercial real estate suffers from economic slowdown
by Arup Chanda
KOLKATA, India, Sept. 4 (Xinhua) -- Due to the economic slowdown, demand for commercial real estate in India has dropped by around 30 percent in the past year, according to industry analysts.
This, in turn, has resulted in at least a 15 percent decline in rentals of office spaces in many locations across the country. In some areas, office rentals have come down by as much as 50 percent.
In fact, credit to the commercial real estate sector grew by just four percent in June, down from 23.2 percent in June 2011, suggesting a subdued activity in the office space or retail segment.
In the first quarter of 2012-13, the country's industrial production contracted 0.1 percent, while exports and imports contracted 1.7 percent and 6.1 percent, respectively.
The slowdown in economic activity has affected the number of office space deals, as companies are cutting on real estate costs and moving from prime locations to suburbs in many cases. Some are even taking up smaller offices.
A report by brokerage firm Kim Eng Securities suggested that across major cities, demand for office units is at a five-year low and office rentals are down by up to 50 percent in some locations. The focus of real estate firms has also shifted from commercial to residential.
For instance, Amit Sarin, chief executive officer of Anant Raj Industries, which had earlier focused mainly on commercial space rental, said: "In the past two years, we have changed our strategy and will now focus on residential for some time."
Even DLF Ltd, India's largest real estate developer, has said its focus is only on high-end residential projects and plots as it does not make sense to do commercial during times of an economic slowdown.
According to a commercial real estate broker Cushman and Wakefield report, prime office rentals in Mumbai, India's commercial capital, have declined by nearly 8.3 percent in April- June this year, compared with last year and remained constant compared with the previous quarter.
In the national capital region (NCR), the pace of real estate development continued to drag in the second quarter of the current year. The total supply of 725,000 sq ft of Grade A space during the quarter was the lowest in the last five quarters, registering a decline of nearly 64 percent over the previous quarter and 45 percent over the same period last year, data from Cushman and Wakefield showed.
"Demand across NCR has declined by about 30-40 percent," said Anil Kumar Sharma, chairman and managing director of Amrapali Group, a real estate company.
Ravi Ahuja of Cushman added that this year they were expecting an absorption of 33-34 million sq ft of office space, nearly no growth from the 35 million sq ft in 2011. "The peak of 2007 saw office space take up 42-45 million sq ft," he said.
In Bangalore, occupants have begun to defer their space requirements, thus resulting in lower absorption levels, the data showed.
Amrapali's Sharma said instead of commercial, it was prudent for a developer to go for hybrid or mixed used development. However, Sarin added commercial would bounce back after one to two years.
The retail space story is worse. Due to a subdued demand for retail space, developers went slow on several under-construction projects, and led to a restrained supply in Mumbai, NCR and Bangalore. Delhi-NCR and Mumbai registered double-digit vacancy levels at approximately 13 percent and 10 percent, respectively, in the April-June quarter, according to a DTZ report. Enditem
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