2015 has been a good year for the commercial realty markets in India driven by surge in economic growth & rise in businesses & industrial outputs. The surge is also driven by lack of supply as due to global economic crisis, most of the developers were apprehensive of building large stock of office space.
In H1 2015, the total office market transaction has been in tune of 18 million Sq. Ft. By the end of the year a total of around 40 million Sq. Ft. of office space is expected to be absorbed, which would be a significant surge from the year before, wherein the total transactions stood at around 30 million Sq. Ft. – Over 33% increase.
The year had seen some of the biggest commercial market transactions with Tata Consultancy Services leasing over 2 million Sq. Ft. of space in Hiranandani, Mumbai for a time period of 15 years. Earlier this year in May, Flipkart leased 2 million Sq. Ft. of space in Bangalore.
The demand has not been distributed even across the various cities in India with growth more centered on cities such as Chennai, Bangalore & Pune etc. The demand in these cities have been driven primarily by surge in IT/ ITES industry. In Bangalore major IT hubs such as Whitefield, Marathahalli, Sarjapur Road, Old Madras Road (OMR), Electronic City, Old Airport Road etc. have witnessed major traction. In Pune, markets such as Hinjewadi & Kharadi were at the center of significant transactions.
The market sentiments have been relatively slow in Delhi- NCR. However, Gurgaon saw a large volume of traction driven by a robust IT/ ITES sectors, which has accounted for over two-third of the market absorption in the city. This was followed by manufacturing. In similar lines, Noida though a small market compared to Gurgaon, is also expected to see more traction in the coming time. The demand will be driven by the rapidly emerging IT/ ITES space that constitutes around 90% of the Noida market.
Mumbai, the commercial capital of India has also seen significant surge in traction in the latter half of the year with transactions centered across Western Suburb & Bandra Kurla Complex (BKC).
IT/ ITES Propelling the Growth Juggernaut
As discussed above change in demand dynamics has been linked to surge in the IT/ITES sectors. Due to the resurrection in US economy, there has been surge in IT/ITES activities in India, which is eventually driving the commercial markets. Other industries that are also contributing towards the growth in commercial markets include, E-Commerce, BFSI, Fashion & Pharmaceuticals etc.
In the coming time, the overall sentiments in the commercial markets are expected to remain bullish. The market sentiments will be driven by the economic growth & government programs such as Make in India, which will see surge in demand for commercial & office units. Lot of companies in NCR, Mumbai & Bangalore are going to expand further thereby giving further push to the commercial markets.
High Returns Enticing More Investment
Due to higher demand in the market, there is substantial surge in investor’s interest in the commercial segment as well. The annual yield in most of the Indian markets have been over 10% in the recent past, thereby surpassing numerous other international cities such as Singapore, New York & Tokyo etc. The commercial markets in Indian cities have also done significantly well in terms of the rental yields that presently lie between 17 to 23 %. Over two third of the investment coming from overseas markets are now being channelized into the commercial sector.
The nature of the commercial market also adds to the return dynamics of the commercial sectors. If one leases out an office for rent, it is generally not feasible to switch address soon. Moreover the tenant has to spend on fit-outs which further makes switching over a difficult job, thereby ensuring better returns for the investors.
Along with institutional investors such as GIC & Blackstone, there has been significant surge in interest from other corporates towards the commercial markets in India.
Positive Upcoming Sentiments
With the national GDP expected to grow by around 8% in the coming year, according to estimates made by IMF, the commercial markets in India are expected to pick up more, leading to increase in traction. The positive sentiments will prevail in the real estate market with more tractions expected in the coming time. According to estimates made by Square Yards Global Intelligence Center (GIC), till 2020, the annual growth rate will be over around 11-12% in the commercial sector.
The rise in commercial markets will also entice more sales in its residential counterparts. It should be noted that underlying fundamentals in the residential markets are always closely linked with the movements in commercial markets. Since individuals generally prefer staying near their offices, upcoming commercial projects with increasing occupancy results in price appreciation of nearby residential markets as well.