Indian rental recovery kept in check on rising available space says RICS India Commercial Property Survey Q1 2010
30 April 2010, The latest RICS India Commercial Property Survey released today has revealed that lettings activity rose at a slower pace in the first quarter although investment activity continues to increaseThe slowdown in tenant demand growth has occurred most visibly in the retail sector. Within the commercial sector, tenant demand for offices is growing at the fastest pace followed by the industrial sector although rising available space continues to keep rental expectations in check.Confidence in the outlook for lettings activity over the next three months continues to grow outside the retail sector although at a more moderate rate than in Q4. Again, office activity is expected to see the strongest growth in tenant activity followed by the industrial market. Despite the expected rise in lettings activity, rents are expected to remain broadly flat for the retail market where renewed declines have been anticipated. Overall 8% more surveyors expect rental expectation to be negative as compared to 3% in Q4
Highlights of RICS Indian Commercial Property Survey Q1 2010:
§ Tenant demand rises at a slower pace across all sectors
§ Rents expected to weaken in retail and remain flat in office and industrial sectors in Q2
§ Capital values rising for offices and stable elsewhere
§ Investment bidders per property and transaction activity rises modestly for the second consecutive quarter for the first time in 6 quarters
The reduction in rental expectations however is almost entirely due to a worsening retail outlook. Notwithstanding the easing in confidence, sentiment in India remains less downbeat as compared to other major economies, such as the US, Germany and Japan.
Meanwhile, it was reported that the use of inducements increased at a slightly faster pace in Q1 consistent with a slight weakening in the occupier market. On the supply side, the development pipeline edged up again, while available space increased at a similar pace than in Q4 2009. Indeed, surveyors reported that development completions rose in Q1 for the first time in five quarters.
Investment bidders per property rose modestly for the second consecutive quarter as has investment transaction activity. Yields rose, however, outside the office sector for the first time in a year as the moderate rise in capital values seen in Q4 has not continued into Q1. Indeed successive interest rate hikes over recent months and possible concerns over tougher monetary policy measures during the remainder of the year may be dampening market optimism.
Compared to other countries in the Emerging Asia region, India was the only country to see a moderation in tenant demand growth compared to the previous quarter. It is still lagging the Chinese economy on many other leading indicators such as rental expectations and investment transaction activity.
Commenting on current market sentiments, RICS members said -
Ramesh Avadhani MRICS, IREO Fund
“Commercial markets in India should see some good enquiries and transactions closures. But don’t expect any major improvements in rental growth or other commercial terms as recovery could be slower than expected. Developers should stay focused without showing too much of hunger on margins/yields and must be offering business space at most competitive rates.”
Amit Goel MRICS, Millennium Spire
“The market is on the verge of revival, yet caution needs to be maintained. Developers’ credentials are very important. We also witness the increase in professionalism in the developers dealing with market and the customer. Having come out of recession, the occupiers/end user has again become active in the market. Investor activities have increased, but the approach reflects caution.”
Chetan D Narain MRICS, Narains Corp
“The market seems to have stabilised for now. A drop or a fall in capital values of commercial properties over a period of 10 to 15 months looks possible. After the correction phase in the residential segment there seemed a panic buying like phase that we went through, which pushed the prices back to 2006 levels and higher in some cases. Sustainability of current price levels seems doubtful.”
Eino Mehta MRICS, Intarch Services Pvt. Ltd
“The volume of vacant office space or space nearing completion is in excess of the demand and hence, the values are not likely to rise in the near future. Though, some sale/purchase & leasing activity has started once again.”
Aman Kapoor MRICS
“The office market in Delhi and Gurgaon area is seeing increased activity and demand mostly fuelled by the SME, insurance, power and telecom sectors. Demand from IT companies is now stable.”
View the full survey – RICS India Commercial Property Survey Q1 2010
Notes to Editors:
About the Global Property Commercial Survey
RICS’ Global Commercial Property Survey is a quarterly guide to the developing trends in the commercial property investment and occupier market. This edition details market conditions for the fourth quarter of 2009 based on information collected from leading international real estate organisations and local firms.
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