Commercial Real Estate Sector shows positive signs

There are signs that the commercial real estate sector is looking up. Enquiries, which had totally dried up in the October-December quarter, are now restarting in the leasing area. Kaustuv Roy, executive director at Cushman & Wakefield says there has been a 50-70% increase in enquiries over the previous quarter. Property advisory companies have started to see this new interest since the beginning of January. Across the country, office space rentals are down 20-40% from the peak in late 2007 and early 2008, and this is one of the main triggers for the movement in the market.

“Certain sectors which are doing well even in the downturn are now starting to execute their expansion plans. They were sitting on the sides waiting for a correction,” says Anuj Puri, chairman and country head at JLL-M. Sectors like pharma, healthcare, education, telecom, FMCG and infrastructure have been comparatively less affected because of the downturn.

Because of the perceived correction, people who have growth plans are sniffing around. “These were the people who smartly held back their decisions earlier. Now that the market has started to correct, they are beginning to look around,” says Vivek Dahiya, CEO of GenReal, a property consultancy firm.

Some leasing deals have already happened in the past few months. According to sources, United Power has picked up 20,000-25,000 sq ft of space in 3C Group’s Green Boulevard; Mid Land Credit has picked up 80,000 sq ft in sector 44, Gurgaon; a management institute has picked up 44,000 sq ft in Gurgaon; Avenue Capital has taken 2,000 sq ft at Global Business Park in Gurgaon; Asia Pacific Diagnostics has taken 1,500 sq ft at Global Orchid and Future Generali has picked up 6,000 sq ft at sector 29, Gurgaon. Mr Dahiya feels this is a good time to do a thorough site search and selection to get the best product at the best rate and then take a decision in the next few months.

The requirement for space though is smaller at the moment. “People are not taking big positions right now. Office space pickup is happening but the size of transactions is small,” says Anshuman Magazine, managing director of CB Richard Ellis. The firm is getting some large deals as well but in a fragmented manner, unlike earlier, when there was a steady stream of large-ticket deals where companies were looking at space in the 2,00,000-3,00,000 sq ft range. “But in this market, even to get these larger deals in a fragmented manner is a very good sign,” he says.

Rentals have rationalised in the last few months and this, along with an option to move to better quality office space is starting to move the market. “In terms of rentals, there will be a further dip of at least 10-20%, excluding in Mumbai. In this market, the expectation is that there will be a dip of further 30%. In terms of demand, it has started to pick up but is being led by strictly value for money buyers,” says real estate expert Anckur Srivasttava. According to Cushman & Wakefield, compared to six months ago, rentals of commercial office space in Gurgaon has fallen by 26%, in Noida by 17%, in Worli and Lower Parel by 38-39%, in Nariman Point by 30% and in Andheri by 33%.

Also, a positive has been the reduction in the time taken for deals to close. “We are working on several transactions which are closing in 1-2 months compared to 4-5 months last year. The negotiation cycles have reduced,” says Mr Roy of Cushman & Wakefield.

Courtesy : Indian RealityNews