DTZ-Track2Realty study on commercial real estate-I

Track2Realty Exclusive:

India Offices 2012

Markets remained cautious but poised for an upturn

The year 2012 began on a cautious note, in the wake of a slowdown in domestic economic growth and a tepid outlook on the performance of the world economy. So far during this year (Q1 2012 to Q3 2012), the overall performance of the office real estate market in the country remained mute compared to the same period in 2011.

During Q1 2012 to Q3 2012, the total take-up across seven of the largest cities in India (Delhi NCR, Mumbai, Bangalore, Chennai, Pune, Hyderabad, Kolkata) stood at 21 million sq ft, which was a drop of 23% year-on-year, due to the cautious approach adopted by corporates in the wake of the economic headwinds during the period. This was in line with the results of our market survey of corporate real estate heads conducted towards the end of 2011, which pointed to a likely drop in demand for office space in 2012, as was reported in DTZ’s Occupiers Survey 2011-12.

The recent macroeconomic indicators in India along with the slew of measures announced by the central government to put the economy back on a higher growth trajectory, by relaxing FDI regulation, including that in multi-brand retail, aviation, insurance, pensions among others has helped improve investment market sentiment. Also, the slowly improving consumer confidence in the USA along with its labour market is assessed to be signs that may be the economic recovery there also is picking up.

These are thought to be good news for the Indian office real estate market as it is closely correlated with the performance of the broader economy, both domestic and global. Currently, there are wide expectations that the domestic economy may have bottomed out and a recovery in GDP growth rates is around the corner, may be within the next six months and is likely to reflect in improving market activity in the office real estate sector in the coming months.

There has already been a sharp increase in take-up for office space across seven of the largest cities in the country in Q3 2012 at 7.6 million sq ft (up 30% quarter-on-quarter), and if the economy gets back to the higher growth trajectory, the office real estate markets is also expected perform better over the coming year.

Take-up down 23% y-o-y so far during 2012

The total demand for office space across these seven cities, stood at 21 million sq ft, down 23% from 27 million sq ft in the corresponding period a year ago. Among the seven of the largest cities in the country, Bangalore was the only city where the demand for office space increased in 2012. During Q1 2012-Q3 2012, the take-up in the city stood at 8.4 million sq ft, an increase of 9% y-o-y, led primarily by large pre-leases by the IT/ITES sector, intended at consolidation and expansion of offices in the peripheral areas of the city.

The largest drop in demand was in Hyderabad where the total take-up at 1.7 million sq ft was a drop of more than 50% from the year-ago period. While Mumbai, due to the overall slowdown in demand, reported a 45% y-o-y decline in take-up in the first three quarters of 2012.

During the year, the demand was largely driven by IT/ITES which accounted for 57% of the total take-up, followed by manufacturing, pharmaceuticals (including healthcare) and BFSI sectors. The demand from IT/ITES sector remained robust across both SEZ and non-SEZ technology parks.

 …to be continued