2015 has been a record year for the country’s commercial market. About 40 million sq ft of lease transaction has been noted, which is about 15% more than the last year. Many macro-economic factors worked well for the market like improved Business Confidence Index, efforts made by the government towards ease of doing business in India, strong economic fundamentals like controlled inflation, and lowering of interest rates were among the leading ones. To add to the cream, an increased appetite has been observed by international investors for leased assets in 2015.
Demand vs supply in 2015
The demand was well complemented by supply in most of the cities and about 32 million sq ft hit the market this year. In fact, the ratio of absorption to new supply, one of the key matrices used to analyse the supply-demand balance of commercial real estate, indicated that lesser supply hit the market as compared to absorption. Vacancy rates have rationalised in most of the markets.
Let’s take a quick tour around the country’s major cities.
- Bengaluru remained at number one position both in terms of supply and demand
- Pune has also seen record-breaking leasing activity this year and for the first time it crossed a mark of 5 million sq ft
- Mumbai recorded almost double leasing activity and NCR as well witnessed increased activity
- Chennai witnessed about 25% up in leasing activity despite the flood menace in the last quarter of the year
Eye on 2016
The outlook for 2016 looks strong for most of the markets. A limited speculative supply is likely to be seen. The rentals for grade A properties in select micro markets are likely to strengthen in almost all the cities. The key trends we foresee for commercial real estate market are:
- Occupiers across all sectors will continue to become more space efficient, doing more with less space as their leases come up for renewal
- For grade A office space, rents are expected to strengthen for quality office spaces in almost all the micro markets
- Government support at policy level is expected to favour real estate sector
- Private equity activity in the commercial sector will continue to gain momentum
- Institutional investors, both domestic and overseas, are demonstrating an increased appetite and willingness to engage
About the author
Surabhi Arora, leads the research team in India and has more than 13 years of experience in carrying out multi-disciplinary research and analysis in the area of finance and real estate industry. Surabhi specialises in real estate economics, policies, commercial and residential real estate research with in-depth knowledge of market dynamics across major markets in India.