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Real estate sector on growth track, but full recovery to take more time

Real estate sector on growth track, but full recovery to take more time

Nikita Upadhyay

Mumbai: On the back of economic recovery, the commercial real estate sector has shown some resilience during the first half of calendar year 2010. Most markets across India have started recording stable rentals, indicating a gradual revival in demand. This trend is likely to remain constant in 2010, where consultants expect rental values to remain stable with a strengthening bias across established markets like Mumbai (BKC) and Delhi (NCR and Gurgaon) regions.

“Although there is a huge oversupply in this sector, commercial real estate demand has started gaining momentum since the first quarter of this calendar year. We have witnessed an increase in the number of queries for buying or renting of these spaces. Marred by the slowdown, commercial real estate has seen an improvement of only 20% and still has a long way to go,” said Raja Kaushal, executive director & COO, BNP Paribas Real Estate.

Axis Bank recently bought 4,00,000 sqft from the Wadia group at Worli (extended central business district) at Rs 640 crore. A Bhushan Steel consortium bought 200 acre at Kharghar in Navi Mumbai for approximately Rs 1,530 crore. Further, Sheth developers also reportedly bought the Golden Tobacco land at Vile Parle for Rs 591 crore and Wadhwa Builders bought 18.18 acre at Ghatkopar for Rs 571 crore. “These large scale commercial transactions are a signal towards the revival of the markets and will propel other large space occupiers to quicken their decision making for real estate,” Kaushal added.

Companies like TCS, Microsoft, Oracle and Accenture, amongst others, have gone for expansion in their office space.“The trend that we see is the resurgence of commercial real estate. Most of the technology companies have gone for expansion in the last 12 months. Rentals for commercial properties on a wider scale have stabilised while for a few cases have also gone up,” said Kaustuv Roy, executive director, Cushman & Wakefield India.

However, the little cheer in the commercial real estate is short-lived, given the over supply existing in the market and the new supply coming in the next few months. “The oversupply in the market is pressurising the rentals. Premium office spaces have picked up faster than the periphery spaces. Some recovery in residential is giving developers a leg-room to hold on to their properties. In the next six months, around 15-18 million sq ft of additional supply is coming in the market,” said Prakrut Mehta, national director, office and industrial segment, Knight Frank India.

Currently, few sectors like pharma, IT/ITeS and automobile are doing well and supported the commercial spaces. “We see full recovery of the sector only by the end of year 2012, as by then, the entire excess supply will be used up. The sector is expected to witness a boom between 2013-2016,” said Sanjeet Narain, MD, Narains Corp.