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High confidence index of MNC office space occupiers challenging trends

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Vigneshwara Developers, Sunil Dahiya, SOHO, Smart Office Home Office, Gurgaon Cyber Greens 2, Delhi NCR real estate, Bangalore Real Estate, JLLM, Jones Lang LaSalle Meghraj, Track2Media, Track2Realty, ravi sinha, india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, KP Singh, DLF, Unitech, Emaar MGF, ndtv.com, ndtv, aajtak, zee news, india news, property news, real estate news, 99acres.com, 99 acres, indianrealtynews.com, indianrealestateforum.comIndiabulls real estate, BSE, Bombay Stock Exchange, Mumbai Real Estate, India Property, Track2Media, Track2Realty, ravi sinha, india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, KP Singh, DLF, Unitech, Emaar MGF, ndtv.com, ndtv, aajtak, zee news, india news, property news, real estate news, 99acres.com, 99 acres, indianrealtynews.com, indianrealestateforum.com, Indiabulls real estate, BSE, Bombay Stock Exchange, Mumbai Real Estate, India PropertyTrack2Realty Exclusive: Sales model in commercial office spaces that was only recently seen as an indicator of distress on part of the developers has, of late, turned out to be a smart business model by the MNCs. These multinational companies seem to have confidence in the Indian growth story and with long term plan they are investing into the purchase of these properties. Track2Realty Focus 2015 finds that it is not a distress sale of developers since the capital values and rental yields have both appreciated sharply in the last three years despite of impending slowdown. The shift of these commercial spaces beyond the IT/ITeS is the most significant trend. 

The multinational companies (MNCs) as occupiers of office spaces across the country are indicating optimism and this high confidence index is actually challenging the way developers used to build and occupiers used to operate. A segment that has traditionally preferred the leased spaces to have asset light model as a business philosophy has suddenly gone into buying the office spaces across the major cities. Beyond this lease model versus the sales model there are also other trends emerging out of the market transactions which indicate that the market is not just entering into next level of experiments but is also bullish on the long term growth prospects in the country.

What is all the more surprising, however, is the fact that the tectonic shift in sales model is not borne out of the slowdown. This may otherwise give the impression that the occupiers’ preference with the office spaces is a result of the developers’ inability to hold and hence distress sale. But that is not the case since none of the major business cities have been witness to the sharp drop in either the capital or rental values of the commercial spaces; it has been rather increasing. Moreover, a significant trend emerging out of the transactions is that the office market is no more driven by the IT/ITsS sector alone.

A Cushman & Wakefield (C&W) report says 43 per cent of office spaces were purchased in India by MNCs since 2012. As per the report, the MNCs are increasingly investing through purchasing offices in India with Rs. 2,470 crores worth office transactions in the last 2 years. There is a seismic shift in the traditional approach of leasing space that such companies have had for years while considering overseas investment. MNCs in the BFSI, ITeS, FMCG & Pharmaceutical sectors are among the lead commercial office buyers in these markets.

According to the C&W report, in 2010, foreign MNCs contributed negligible to the sales of commercial office space. But the report finds that in 2012, 2013 and during the 1st quarter of 2014 foreign MNCs contributed 43 per cent to the total sales value of commercial offices.  

Explaining this Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield says that the companies that have established operations in India and are confident of their projections and potentials in the country are now tailoring their real estate requirement so that they can be more cost-effective. Companies in specific sectors such as Pharmaceuticals and IT & ITeS are looking to consolidate their research and development divisions with their front-end divisions in a single set-up and are looking for assets to purchase as it proves to be a cost effective strategy for companies.

“There are other factors too, namely the tax implications for US based companies. Another factor compelling especially the US-based companies to switch from ‘Leasing strategy’ to ‘Buying strategy’ is that corporate profits earned outside the US are not subject to federal taxes unless they are brought back to US shores. This makes these companies cash rich and they are able to re-deploying hefty profits earned back in the emerging markets rather than loose the earnings to taxes” says Dutt.

Devina Ghildial, Deputy MD, RICS South Asia also maintains that the trend is significant as it indicates that a number of multinational companies are now establishing their operations in the country and are hopeful of a potential growth of their businesses in India. According to her, from the point of pricing, rates have remained stable all through the one-year period.

“Having understood the trend, companies are now looking to invest and buy instead of taking space on rent. This would give them capital appreciation and will help them gain profits by increased asset pricing. While capital values across commercial real estate are expected to rise in the next 12 months, rental rates in the office segment is expected to be the strongest as compared to other segments such as retail and industrial segments, according to the latest RICS Commercial Survey for the second quarter (April-June), of 2014. With rental rates going up in coming quarters, established companies will stand to gain if they purchase the office they occupy,” says Ghildial.

The C&W report also indicated that majority of the companies investing through purchase are from the BFSI (Banking, Financial Services and Insurance) sector, given their strong presence and long term plans of companies in this sector. The other sectors that have shown keen interest are IT, Pharmaceuticals and Engineering companies. The report deduced that over long-term buying offices always make greater economic sense than renting premises. With the new pro-business government there has been a positive sentiment in the market and this reflects in the volume of buying that has been executed by foreign companies.

Arvind Jain, Managing Director, Pride Group finds the trends very encouraging. He believes many corporates now prefer having an owned office space reflecting on their balance sheets. While the capital expense involved is purchasing commercial space is considerable, this is quickly offset by the savings on rental outgo. We are seeing the trend of MNCs increasingly preferring to buy rather than lease office space reflecting largely in Mumbai. MNCs in cities like Delhi, Bangalore, Pune and Chennai still show more preference to leasing their offices.

“The fact that the share of IT/ITeS is decreasing in office spaces is a god sign that indicates the market is witnessing healthy diversification. A city should not be overly dependent on IT/ITeS in the first place because this sector has shown marked fluctuations over the years. Having a diversified occupier profile indicates that a city is better insulated against downturns. Mumbai and Pune are excellent examples of such healthy diversification in occupiers. BFSI is in any case in a growth mode in India, but there is also more and more absorption by logistics, manufacturing, telecom, biotech and pharma companies,” says Jain.

Maintaining that buying than leasing reflect the confidence of office occupiers in the Indian growth story, Kishor Pate, CMD, Amit Enterprises Housing says it all boils down to how individual MNCs perceive their operations in India. An increasing trend towards buying rather than leasing office space definitely indicates that confidence is high. Confidence in the India growth story is returning in force, and this is one of the many factors that reflect this fact.

There is also the cost benefit in the long term as rents have been increasing every year from 2011 to 2013 in most of the prime markets where MNCs have typically leased office spaces. Though rentals have been more stable this year, there are expectations that they will start increasing from next year. Capital values have also increased moderately during the period. Hence, companies stand to gain financially if they decide to deploy capital to acquire the spaces they occupy.

 

Robust expansion leads to 36% increase in office absorption over last year

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Vigneshwara Developers, Sunil Dahiya, SOHO, Smart Office Home Office, Gurgaon Cyber Greens 2, Delhi NCR real estate, Bangalore Real Estate, JLLM, Jones Lang LaSalle Meghraj, Track2Media, Track2Realty, ravi sinha, india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, KP Singh, DLF, Unitech, Emaar MGF, ndtv.com, ndtv, aajtak, zee news, india news, property news, real estate news, 99acres.com, 99 acres, indianrealtynews.com, indianrealestateforum.comIndiabulls real estate, BSE, Bombay Stock Exchange, Mumbai Real Estate, India Property, Track2Media, Track2Realty, ravi sinha, india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, KP Singh, DLF, Unitech, Emaar MGF, ndtv.com, ndtv, aajtak, zee news, india news, property news, real estate news, 99acres.com, 99 acres, indianrealtynews.com, indianrealestateforum.com, Indiabulls real estate, BSE, Bombay Stock Exchange, Mumbai Real Estate, India PropertyTrack2Realty: Net office uptake in the first three quarters (Jan – Sept) of 2014 has seen a significant rise of 36% as compared to same time last year. Total net absorption of office space has been recorded at approximately 24 million square feet (msf) between January – September in 2014 as against the 17.7 msf in same time in 2013, says Cushman & Wakefield in a report.

 NET ABOSRPTION (JAN – SEPT 2014)

City Jan – Sept 2014 Jan – Sept 2013 YTD
Ahmedabad 1,139,100 356,590 219%
Bengaluru 6,191,154 3,225,806 92%
Chennai 2,018,149 1,391,511 45%
Hyderabad 3,873,673 2,100,179 84%
Kolkata 625,576 773,882 -19%
Mumbai 3,620,975 3,572,493 1%
NCR 4,548,030 3,351,656 36%
Pune 2,216,532 2,988,444 -26%
TOTAL 24,233,189 17,760,561 36%

During YTD 2014, Ahmedabad, Bengaluru and Hyderabad witnessed the highest increase in net absorption; Ahmedabad recorded the highest over two – fold increase in net absorption in 2014, albeit on a smaller base. Bangalore witnessed an increase of 92% in net absorption during YTD 2014 over the same period in 2013 and was noted at 6.2 msf.

Hyderabad saw an increase of 84%, recording a net absorption of 3.8 msf.  and continued to outperform Mumbai essentially due to the substantial increase in pre-committed absorption during this period.

On the other hand cities namely Pune and Kolkata office market saw a decline of 26% and 19% y – o – y in total net absorption respectively.

The top performing cities were Bengaluru (6.2 msf) and Delhi-NCR (4.5 msf) and constituted approximately 45% of the total net absorption in YTD 2014. YTD Net absorption in Bengaluru has already exceeded the annual net absorption of 2013 which was recorded at 4.7 msf owing to strong demand from IT-ITeS companies. The leasing activity in NCR was also dominated by IT-ITEs companies with absorption in Q3 contributing more than 50% to its performance.

In the same time, supply across the top 8 cities recorded at 24.8 msf marginally increased by 4% as against YTD 2013. Overall vacancy levels too declined to 18.4% at the end of Q3 2014.

Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield said, “The office markets have seen a positive trend as the economic growth improved from all-time lows and business confidence strengthened. Companies have started to expand their operations and new leases and expansion now constitute 75% of the leasing activity in the country with relocations and consolidations witnessing a decline over last year. We will continue to see this positive momentum in the next 2-3 years with net absorption likely to outstrip new supply from the year 2016.”

City Overviews

Ahmedabad

Total supply for the first three quarters of 2014 was recorded at 1.7 msf, a substantial increase of 74% compared to same period last year as a number of developments that were deferred in the previous year became operational. Net absorption in the first three quarters of 2014 was noted at 1.1 msf which is more than double the same period last year.

This is owing to new leases and pre-commitments measuring 400,000 sf that were taken up during the said period. Net absorption (in the first three quarters) was concentrated in Gandhinagar (36%), Prahladnagar (35%) and S.G. Highway (26%). Transaction activity in 2014 was primarily driven by the IT-ITeS (49%), BFSI (28%) and manufacturing (13%) sectors.

Although the average transaction size remained similar to last year same period at 12,000-15,000 sf, the increase in number of deals in the IT-ITeS and manufacturing sector led to the increase in net absorption. Other sectors that added to the increase are media and pharmaceuticals. With high levels of supply, vacancy levels increased by 4.6 percentage points to 18.5% at the end of the third quarter. Given the high vacancy levels rentals in most submarkets have largely remained stable over the last year.

Bengaluru

During the first quarter of 2014, 5.5 msf of office space became operational in Bengaluru, all of which belonged to Grade A category and was 19% more than the same period in 2013. 67% of the supply was infused in peripheral submarket, followed by 25% in eastern submarket. Net absorption during YTD 2014 increased by 92% over the same period in 2013 and was noted at 6.2 msf. The IT-ITeS sector continued to dominate absorption; the share in net absorption increased to 76% in the first three quarters of 2014 from 57% in same period last year.

The average size in the IT-ITeS sector also increased by 25% over the same period in 2013 highlighting increasing prominence of IT companies in the city owing to improving economy. Share of BFSI and healthcare companies also increased over last year while consulting, manufacturing and engineering companies noted a decline in transaction activity.

A number of occupiers belonging to IT-ITeS and healthcare sectors relocated to peripheral and eastern submarkets from CBD/Off CBD submarket during the third quarter of 2014. Similar to net absorption, pre-commitments in the first three quarters increased by more than three times in the same period in 2013 and were recorded at 4.3 msf.

Peripheral submarket continued to witness majority of the pre-commitments with 67% share followed by Eastern and Northern submarkets. Despite the high demand, the rental values across most submarkets maintained status quo except CBD/Off CBD submarket where a 17% drop was noticed owing to large scale relocation and increased vacancy levels. Buoyant net absorption reduced vacancy levels by 1.2 percentage points over the previous quarter, which was noted at 12.4%.

Chennai

During YTD 2014, Chennai witnessed new supply of 813,000 square feet (sf) which is 76% lower compared to the same period last year. In the wake of slow recovery in macroeconomic fundamentals, several developers have been witnessing construction delays and have pushed delivery timelines to later periods restricting new supply. CBD witnessed 35% of this total supply, constituting of commercial office space only.

In 2014, corporate houses, mainly in IT-ITeS sector, focused on expansion and consolidation of their operations in the city which resulted in net absorption levels of 2.0 million square feet (msf) which is 45% higher compared to the same period last year. Suburban-Rajiv Gandhi Salai (52%) and CBD (17%) witnessed the majority of net absorption amongst all submarkets. Many relocations and downsizing of operations was rampant in 2013 which resulted in overall all grades net absorption of 1.3 msf, even though total leasing activity was much higher than this year.

Improving demand scenario also led to 50,000 sf IT space being pre-committed in 2014 whereas no pre-commitments were made in the city last year. In the wake of improving demand, mainly from IT-ITeS and telecom sectors, the overall vacancy levels stood at 13.3% at the end of Q3 2014, which is 3.3% lower than the same period in 2013.

The weighted average rentals maintained status quo, though CBD rentals declined by 8% over the last one year as occupiers took advantage of competitive rentals offered by landlords in this submarket in the wake of higher vacancies. 

Delhi- NCR

Delhi-NCR witnessed cumulative supply of approximately 6.6 msf in the first three quarters of 2014, 36% higher than the supply witnessed in the corresponding period last year. The share of Grade A developments in the first three quarters of 2014 has been 99% compared to 81% same time last year as developers continue to align with the requirements of corporate sector. Commercial developments (71%) had the highest share in new supply followed by equal share of IT and IT-SEZs (14% each). At 4.5 msf, net absorption during January-September 2014 also recorded an uptick of 36% compared to same period last year.

While IT-ITeS (56%) continued to have the highest share in demand, engineering & manufacturing along with BFSI sector from last year were overtaken by telecom (9%) and consulting (5%) sector this year. The highest increase in demand was witnessed in the pharmaceutical and healthcare sectors (5.3 times) followed by IT-ITeS (1.24 times) and telecom sector (I.2 times). By the end of Q3 2014, 1.0 msf of space has been pre-committed by IT-ITeS sector in IT-SEZs whereas in the same period last year pre-commitments were primarily observed in commercial developments.

Overall vacancy rate increased by approximately 2.2 percentage point to 26.9% on account of supply outpacing demand. Robust demand led to vacancy levels in Gurgaon CBD submarket nearly halving in Q3 2014 from the levels of Q3 2013 and reaching single digit vacancy levels. The weighted average rentals for the overall city increased by 5.8% compared to the same period last year due to significant supply in Delhi at higher rentals and rentals strengthening in Delhi CBD and in peripheral submarket of Gurgaon.

Hyderabad

During the first three quarter of 2014, Hyderabad witnessed 4.2 msf of new office space, which is 2.6 times of last years’ supply in the same period. The supply majorly constituted the deferred supply from previous years. YTD 2014 witnessed a significant drop in relocation and consolidation activities compared to the same period last year, this coupled with a substantial increase in pre-committed absorption led to 84% increase in this year’s net absorption over the same period last year.

IT-ITeS sector continued to dominate the leasing activity in 2014 with 83% share in YTD 2014 compared to 60% same period last year. In the wake of significant increase in number and size of pre-committed absorption, average deal size in 2014 till date increased by 28% compared to the same period last year and was noted at 18,400 sf. Although the third quarter did not witness any new pre-commitment, the YTD 2014 pre-commitments stood at 768,000 sf entirely contributed by the IT-ITeS sector.

Significant influx of supply pushed the vacancy levels to 18.4%. The weighted average rentals increased by 2.4% compared to the same period last year due to increase in available space quoting higher rentals, transacted rentals however continued to remain stable.

Kolkata

Kolkata witnessed about 489,700 sf of total supply influx during YTD 2014, significantly lower by 68% over the corresponding period a year ago. This was on account of large projects getting deferred to the subsequent year owing to subdued demand and huge availabilities. Around 80% of the supply in YTD 2014 was concentrated and distributed equally in Salt Lake and Park Circus Connector submarkets while during the same period last year Salt Lake witnessed almost half (48%) of the supply and about a quarter (25%) was recorded in Rajarhat submarket.

Demand for office space witnessed a decline and hence net absorption fell by 19% in YTD 2014 compared to the same period last year and was noted at 625,600 sf. This was on account on subdued demand and fewer pre-committed absorptions Salt Lake and Rajarhat submarkets continued to attract majority of the demand with 54% and 29% share respectively in total net absorption.

No fresh pre-commitments were witnessed in both the years owing to huge availabilities. IT-ITeS remained the highest contributor in total net absorption with 42% share, followed by the Banking, Financial Services and Insurance sector (BFSI) with 18% share. The share of both IT-ITeS and BFSI increased from 26% and 10% respectively reported during the same period a year ago on the back of expansion plans. The average deal size in the IT-ITeS sector increased to 19,000 sf in YTD 2014 from 13,400 sf in YTD 2013.

Overall vacancy level was recorded at 27.4%, higher by about 0.9 percentage points on Y-O-Y basis on account subdued demand and few tenants closing their operations thereby creating more availabilities. Weighted average rentals depreciated by 3-4% in Salt Lake and Rajarhat submarkets on account of substantial office stock lying unoccupied and demand continued to remain low.

Mumbai

Overall supply for the first three quarters in 2014 was noted at 3.7 msf, a marginal increase of 2% compared to the same period last year. The share of Grade A developments remained similar around 85-88% during the same period in 2013 and 2014. This year the supply constituted of commercial developments followed by IT Parks (35%) and IT-SEZ’s (15%), compared to previous year where a majority of the developments were IT Parks (61%) followed by commercial developments (28%).  Similar to supply, net absorption also increased marginally by 1% and was recorded at 3.6 msf for the first three quarters of 2014.

Despite healthy transactions in the third quarter, the first half saw lower expansions by companies resulting in marginal increase. The share of IT-ITeS sector in transaction activity declined to 33% in the first three quarters of 2014 from 40% in the same period last year; while contribution by logistics and media sectors slightly increased with companies expanding presence in suburban locations.

Average deal size in the IT-ITeS sector also declined from 50,000 sf in 2013 to 38,000 sf in 2014 and primarily consisted of companies with back office operations. Transaction activity by the BFSI sector largely remained stable with a 15% share in the first three quarters of 2014, similar to the same period last year. Given the continued transaction activity and stable supply, overall vacancy levels declined by 0.8 percentage points to 16.3% at the end of the third quarter.

Average rentals have largely remained stable across most markets except the CBD where rentals have declined 9% since the beginning of 2014 due to subdued demand. Pre-commitments for the first three quarters of 2014 was noted at 730,000 sf similar to the same period last year primarily from companies in the IT-ITeS sector.

Pune

The city witnessed total supply of nearly 1.9 msf in the first three quarters of 2014, witnessing a decline of 42% compared to the same period last year. Total Grade A supply which was noted at 1.1 msf  declined by 63% compared to last year owing to delay in construction schedule which also led to decline in pre-commitments.  The year 2014 till date recorded only 30,000 sf of pre-commitments compared to 332,300 sf during the same period last year. YTD net absorption in 2014 recorded a dip of 26% at 2.2 msf, compared to the same period last year due to subdued demand in the first half of 2014 and higher number of relocations witnessed in the city.

The IT-ITeS and BFSI sectors continued to remain the major demand drivers, though the share of IT-ITeS sectors dipped from 68% in the first three quarters of 2013 to 54% in 2014 same period. However in 2014 till date, BFSI sector’s contribution increased to 26% from 5% as the average transaction size increased to 67,800 sf from 13,100 sf compared to the same period in 2013 owing to a few large deals each exceeding 150,000 sf.

Overall vacancy levels declined by 1.3 percentage and was noted at 24.5% at the end of third quarter. The quoted rentals for most developments remained stable, however weighted average rentals declined across majority of the submarkets due to take up of quality developments quoting relatively higher rentals.

 

Office space absorption in Q1 2014 drops by nearly 5%

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Vigneshwara Developers, Sunil Dahiya, SOHO, Smart Office Home Office, Gurgaon Cyber Greens 2, Delhi NCR real estate, Bangalore Real Estate, JLLM, Jones Lang LaSalle Meghraj, Track2Media, Track2Realty, ravi sinha, india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, KP Singh, DLF, Unitech, Emaar MGF, ndtv.com, ndtv, aajtak, zee news, india news, property news, real estate news, 99acres.com, 99 acres, indianrealtynews.com, indianrealestateforum.comIndiabulls real estate, BSE, Bombay Stock Exchange, Mumbai Real Estate, India Property, Track2Media, Track2Realty, ravi sinha, india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, KP Singh, DLF, Unitech, Emaar MGF, ndtv.com, ndtv, aajtak, zee news, india news, property news, real estate news, 99acres.com, 99 acres, indianrealtynews.com, indianrealestateforum.com, Indiabulls real estate, BSE, Bombay Stock Exchange, Mumbai Real Estate, India PropertyTrack2Realty: Office space demand slowed down in the first quarter of 2014, with around 6.3 million sq. ft. of office space getting absorbed across the leading cities of the country as against 6.6 million sq. ft. in Q1 2013—a drop of approximately 5%. Transaction activity was dominated by the National Capital Region (NCR), Bangalore and Chennai—representing about 70% of the total space transacted during the quarter. The IT/ITeS, financial and services segments continued to drive demand for office space, according to the findings of CBRE’s latest report, India Office MarketView Q1 2014.

New office space supply in the leading cities was also affected due to existing vacancy levels and lower demand. About 6.6 million sq. ft. of fresh office space was completed in Q1 2014, compared to about 10 million sq. ft. in Q1 2013—a y-o-y decline of about 34%. Bangalore led project completions, followed by Delhi NCR and Mumbai—together contributing to more than 80% of the total office space addition in the quarter under review.

Commenting on the findings of the report Anshuman Magazine, Chairman and Managing Director, CBRE South Asia said, “Occupiers continue to remain focused on optimal space utilization and cost saving strategies. Going forward, demand is likely to be concentrated mostly in the peripheral micro-markets of leading cities, owing to abundant availability of cost effective quality space options. The upcoming General Elections and the formation of a new government are expected to affect the corporate market as well. In the short to medium term, we can expect firms in the IT/ITeS, banking/financial services and pharmaceuticals to remain key contributors to overall office space absorption across major cities..”

Rental trends exhibited mixed sentiments across micro-markets on q-o-q basis.. Rental values in the Central Business Districts of Delhi, Bangalore, Chennai and Pune appreciated in the range of 2–5% q-o-q due to increasing occupier interest in leading Grade A properties. In Mumbai, meanwhile, feeble demand levels continued to have a negative impact on rentals across markets, with values dipping by 2–5% q-o-q in Nariman Point, the Bandra–Kundra Complex, Worli and Prabhadevi—mainly due to weak occupier demand and existing vacancy pressures.

Overall, the commercial real estate market in India saw sluggish transaction activity and a low level of new completions during Q1 2014. Leading cities across the country continued to see heightened caution from corporate occupiers, resulting in subdued leasing activity during the first three months of the year. The majority of these deal closures took place for small to medium-sized office spaces.

Key Indian cities witness supply of over 20 mn. Sq.ft. of prime office space in the H1 2013

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Vigneshwara Developers, Sunil Dahiya, SOHO, Smart Office Home Office, Gurgaon Cyber Greens 2, Delhi NCR real estate, Bangalore Real Estate, JLLM, Jones Lang LaSalle Meghraj, Track2Media, Track2Realty, ravi sinha, india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, KP Singh, DLF, Unitech, Emaar MGF, ndtv.com, ndtv, aajtak, zee news, india news, property news, real estate news, 99acres.com, 99 acres, indianrealtynews.com, indianrealestateforum.comIndiabulls real estate, BSE, Bombay Stock Exchange, Mumbai Real Estate, India Property, Track2Media, Track2Realty, ravi sinha, india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, KP Singh, DLF, Unitech, Emaar MGF, ndtv.com, ndtv, aajtak, zee news, india news, property news, real estate news, 99acres.com, 99 acres, indianrealtynews.com, indianrealestateforum.com, Indiabulls real estate, BSE, Bombay Stock Exchange, Mumbai Real Estate, India PropertyTrack2Realty: The prime office space segment across key cities in India witnessed a supply infusion of more than 20 million sqft in the first six months of 2013.

According to the findings of CBRE’s latest report, India Office Market View Q2 2013, supply of prime office space across key cities in India witnessed a 16% increase year on year and an 8% increase on a quarter on quarter basis.

Around 10.8 million sqft of new supply entered the market in Q2 2013; while Q1 2013 witnessed around 9.9 mnsq.ft. offresh supply addition. This supply was primarily from large commercial and SEZ developments which were completed in leading markets such as Bangalore, Mumbai, NCR (National Capital Region) and Pune.

Approximately 7 mn sq.ft. of space was absorbed in this quarter as against 6.6 mn sq.ft. in the previous quarter. However, downward pressures continued to persist as absorption was down by about 6% when compared to the same period last year. The first half of 2013 witnessed a total of about 14 mn sq.ft. of space getting absorbed across all leading cities.

Transaction activity in Q2 2013 was dominated by NCR, Mumbai, Bangaloreand Pune, representing about 88% of the total transacted space during the quarter. Occupier focus continued to be on consolidation and more efficient use of their existing portfolio. Although well positioned assets continued to attract occupier interest, transactions continued to take much longer to conclude.

Commenting on the findings of the report, Mr.Anshuman Magazine, Chairman and Managing Director of CBRE, South Asia, said, “Despite a large supply infusion into the market, the prevailing global economic outlook continues to play a big part in expansion plans for corporates across the board. Cost reduction continues to be a primary concern and the overall mood in the leasing market remains cautious. I expect this sentiment to continue till the global as well as Indian economic situation improves.”

Supply pressures continued to dictate rental movement with a clear segregation of micro markets in terms of rental behaviour across leading cities. Rents were either stable or appreciated marginally in demand driven micro-markets such as Connaught Place, Gurgaon, BandraKurla Complex, Lower Parel and Outer Ring Road. Rental sentiments in supply driven micro-markets such as Thane, Navi Mumbai, Powai and Vikhroli were on a downward trajectory.

The India Office Market View is a quarterly report which provides a summary of office rents across key cities in India. It includes average rental rates for the coming quarter as well as an outlook for the next quarter. The India Office Market View report also covers Grade A office space rentals across the cities of NCR, Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata.

Commercial property leaping ahead than residential

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Sunil Dahiya, vigneshwara Developers, SOHO, Small Office Home Office, Commonwealth Games Village Vasant Kunj, VDPL, Vigneshwara Developers Private Limited, Delhi NCR real estate news, realty news india, real estate news india, property news india, commercial real estate indiaThe Indian real estate market has matured to the extent that it is seen as the best investment instrument, as a recent survey by ASSOCHAM points out. However, in the absence of any formal investment education there is a general perception that residential property is the best bet for investment. With my exposure to the business of real estate what I find is that commercial property is much more profitable and rewarding than residential one.

I have facts to back my claim. For example, ten years back in Gurgaon, the market rate for residential property was around Rs. 10 lakh and commercial property in the same area was Rs.15 lakh. However, the rates for the same residential property now are Rs. 80 lakh and that of the same commercial property is Rs. 2 crore & 20 lakh. This shows that an investment of Rs 10 lakh in residential property at that point of time has resulted in a deficit gap of Rs. 1 crore and 40 lakh.

Defying the general perception there are figure available that shows why commercial realty provides the kind of returns that residential property could not. Look at the some of the properties located in the heart of Gurgaon. The introductory price for commercial space in these pockets was in the range of Rs. 5000-5500 per Sq. Ft. as against today’s cost of around Rs.60-70 thousand per Sq. Ft. This makes the capital appreciation in 10 years to reach 1000% in Commercial property.  In the same area residential plots were launched at the rate of Rs. 3-5 thousand per Sq. Yd. and now it is 30-40 per Sq. Yd.

This clearly reflects the gap and the reward difference between residential and commercial property. Commercial property is also way ahead of residential in terms of its leasing value. In commercial property the investors can get directly benefitted by leasing or renting the space to a multi national company for establishing their corporate or branch offices. Now if one compares the residential one, definitely the income incurred from leasing out a commercial space would be far greater than the later one.

Commercial properties have two other big pluses. They can deliver higher yields than residential and lessees usually take responsibility for decoration and maintenance. Another advantage is that lessees are usually long term, meaning less hassle searching for new tenants.

Commercial real estate offers many benefits over residential real estate in addition to higher returns on your investment. It also allows for forced appreciation. Residential real estate is typically valued based on other comparable properties that have sold in the area that are similar in features. However, in commercial real estate, the valuation of a property is based on the revenue that the property generates. A small increase in revenue can increase the value of a property significantly. Unfortunately, with residential real estate this isn’t an option as you really can’t force appreciation; your property will be valued in the general range of the market.

The author, Sunil Dahiya, is Managing Director, Vigneshwara Developers Pvt. Ltd.