An overcautious year ahead for real estate sector-II

By: Anshuman Magazine, CMD, CBRE, South Asia

The office market is likely to observe steady demand, especially in prime locations in leading cities like NCR, Mumbai and Bengaluru. However, a downside remains with global economy witnessing a downturn; commercial demand from global occupiers might be low in 2012. This would mean that demand trends would be dictated by domestic occupiers.

Vacancy rates might continue to shrink in prime locations, while increasing in suburbs on the back of strong supply pipeline. As the supply pipeline in the suburbs is likely to remain strong, this is expected to exert pressure on the rental values in these locations. In terms of investment activity, private equity investments in new projects are likely to remain strong, although exits might be witnessed in existing investments.

Retail activity has surged in the past few months across India. The increase in leasing activity led to an increment in rentals on key high streets and mall properties across the country. Major global brands like Zara, courting the franchisee model, have been expanding operations in the country and would continue to do so in the near future.

However, retailers are also cautious in market selection and have a sustained preference for tier I and II cities. In the short term, demand is likely to maintain stable, especially in prime retail locations in leading cities like NCR and Mumbai. Quality retail supply will be high in NCR and Mumbai, while being muted in smaller centres.

The residential segment has borne some negative impact on demand due to repeated hikes in key rates by the central bank. This has impacted the housing loan rates, thereby lending additional pressures on home buyers. In order to spur demand developers have started to offer discounts in project pricing, thereby adapting flexibility to attract buyers

The current monetary tightening policy is hampering the demand for residential apartments. If the present tightening phase of the monitory policy is not extended further, we might witness an increase in demand for residential property by mid 2012.