Commercial real estate: Key demand drivers in red-II

2^nd of the series

Track2Realty Exclusive

Market report has it that commercial realty is continuously going into red. A Report by the Royal Institution of Chartered Surveyors (RICS) suggests Indian commercial property market has lost momentum in Q3 with the capital values turning negative for the first time since 2009. According to the RICS India Commercial Property Survey, although the economy has continued to grow steadily, output growth has seen a decline through the course of 2011. This aspect coupled with interest rates continuing on their upward trajectory has affected market sentiment, and modest deterioration in markets expected even in the coming quarters.

Additionally with the current level of uncertainty in global financial markets affecting the commercial real estate sector in many economies, especially with the intensification of the euro area crisis, India has also dropped 6 places to be ranked at 19, in relation to its Q4 rental value expectations as a consequence of available space rising at a faster rate and a slack in occupier demand witnessed over the previous quarter.

The brokers in the business, however, assert that there has been an increase in investors looking for such opportunities, since the prices are now near the lowest possible levels. With market correction already taken place and developers taking corrective measures on demand-supply mismatch, 2012 might just be a very significant year for the commercial real estate, they maintain.

Vyomesh Shah, Managing Director, Hubtown believes investors may look at pockets where prices have eased to an attractive level but the future potential remains good. They may also invest in semi-developed areas where infrastructure development will take shape in coming 2-3 years. Areas where prices have stayed high may be avoided due to limited upside.

“The developed economies are facing a downward trend, but if you see the performance of the emerging economies, they are faring better and rather outperforming their global counterparts.  The growth potential is high and the developed world is increasingly opting to invest in countries such as India, China and Brazil. The scenario in Mumbai Metropolitan Region looks quite strong considering that it has been accepted as one of the important financial capitals of the world. In fact the absorption of office space is seen at various levels and not just large corporates, but mid-sized offices are also looking for plush spaces that offer good amenities,” says Shah.