It is time for commercial property owners to rejoice as retail and office segments of commercial properties are going to bring in better rental incomes in the coming months. The improvement in rent can be attributed to the improvement in demand and economic conditions. The formation of a stable central government has shown a sign of economic recovery in various Indian markets. The recovery is present in different segments of the commercial real estate market, as per the India Commercial Survey conducted by the RICS in the 1st quarter of 2014, between January and March.
With the Prime Minister making several trips to neighbouring countries, including some in the Far East such as Japan, market sentiments have been quite positive. Numerous positive indicators are there in the market. For the first time in three years, demands of occupiers have surpassed the increase in supply of commercial property, even though the difference is only marginal. It indicates that the demand is healthy for quality spaces in this market. As the commercial property rent had reached rock bottom in the past couple of quarters, owners can expect the rent to increase from where they are currently. The next quarter is poised to see an increase in the pace of business. As per the survey conducted, the occupier demand for retail and office sectors increased between the January and March months of this year. The OSI or Occupier Sentiment Index was quite in neutral territory at the +7 level compared to its previous value at -13, which has ended a run of 7 consecutive non-positive readings. Even though the demand for commercial properties increased, the industrial space demand fell during this period.
The industrial sector has been battling several bottlenecks such as increase in interest rates, inflation and bounded availability of good quality space which is well connected to highways and other avenues of connectivity. The new government is expected to bring in reforms for this sector which has been battling these problems for quite some time. Experts expect the transaction levels of the market to rise along with an increase in rents. Another aspect that the survey noted is that the investment interest in the industrial and retail segment has fallen. Only the office sub-segment has shown some kind of material growth. The survey has added that the ISI or the Investment Sentiment Index has fallen to -8 from the past quarter’s reading of -1.
When compared to other BRICS countries like China, Russia and Brazil that have suffered a downturn of the market in terms of the economy, the Indian property market’s squeeze has actually not been that bad. Even though some research is required for underpinning the larger picture, the expectations in the medium term in the realty sector is now improving. In the coming 12 months period, the projections for capital and rental values are strongly positive than what they were in the past year’s latter half.
Investment and occupier sentiment across several Asian nations like Russia and China has been subdued in the 1st quarter of the year. All over the world, realty markets are showing more positive signs of recovery in a highly challenging macro background. While Japan and UAE have performed the best, Russia and Brazil were weakest when it came it investment and occupier demand. In the NCR Delhi region, commercial property in the office subsector has shown healthy to moderate level of net absorption in the last 3 years. The rate of absorption in the year 2013 was the lowest in 9 years, even though there were healthy leasing activities. This is mainly because occupiers focused more on portfolio rationalization and cost saving measures. Office spaces have been rented mostly by the IT and ITeS segment and it has contributed largely to the leasing volumes while the industrial and manufacturing sectors have shown impressive traction lately. For office commercial property occupiers, Gurgaon is the most favourable destination although Noida has performed reasonably well too. However, Noida is mostly driven by the IT sector whereas Gurgaon has exhibited a healthy mix of corporate and IT occupiers.
In a horizon of one to three years, real estate market participants should see betterment in demand by occupiers and absorption because economic conditions of Western Europe and US are becoming stable again. Therefore, the outsourcing business in India is set to flourish which would lead to a better performance of the commercial office property sector. A lot of domestic corporates in India would contribute to non-IT property demands as well.
From the perspective of investment, it would be best you opt for leased assets only in the present scenario. Bigger investors must consider raising of domestic PE funds which want to invest in commercial property in India.
If you are thinking of investing in commercial property, now would be the right time as prices are still low while rental rates are increasing. Most cities offer a wide melange of commercial properties to invest in and you could invest in office property or retail space. If you are thinking of investing in retail property, it would be best you opt for a property which is not present in a mall because possessing such a property would be difficult. Maintenance of such a property is very high and given the slowly recovering real estate market, it may take you a long time to recover the amount that you spend on the property.
To invest in commercial property, you can look up the various real estate websites for property listings. Simply enter the name of the city where you want to buy the property and the website would show you the best options available within your budget. You can also enter your budget to streamline the search results. When you visit to inspect the property, make sure you go through the papers of the property as well to ensure that there is no dispute in the property and also the ownership can be well traced. Opt for a property which is on the main road or at least visible to passer-by for fetching better rent.