Demand in commercial realty gaining momentum: Developers

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Rituraj Baruah | 14 Jun, 2018
For commercial real estate, developers feel the worst is over, and signs of a revival have started showing up with pent-up demand and stocks declining. The outlook for the sector, they say, is now better.

In line with the slump in the residential segment, commercial real estate too went through a slowdown in the last five years and received major back-to-back blows in the past couple of years with the coming in of the Real Estate Regulatory Act (RERA), Goods and Services Tax (GST) and demonetisation. But now, market players say, the bad phase is over.

"The demand from commercial real estate has increased with improved occupancy and rentals. The commercial real estate market has witnessed a growth due to the increased penetration of e-commerce, demand for quality workplaces and warehouses," Amit Wadhwani, Director of Sai Estate Consultants, told IANS.

Prasoon Chauhan, CEO of NCR-based HomeKraft, was upbeat about the outlook for the sector and said: "It is expected that the coming quarters will continue to witness more commercial supply across key markets. As a result of the stricter regulations in the real estate industry, commercial real estate will continue to see healthy leasing volumes."

Going by the current demand, it is expected that the average rent for "grade A" office spaces is likely to rise marginally in key markets and continue to attract demand, while new emerging areas will continue to witness stable rents for now, Chauhan said.

Talking about higher demand leading to decline in stocks, Vipul Shah, Managing Director of Parinee Group, expressed the view that "the vacancies in commercial real estate is at an all-time low and there is robust demand from corporate and SMEs (small and medium enterprises)."

Office space absorption is not only strong but pre-leasing is at an all-time high, indicating sustained demand and occupiers' interest in commercial spaces, Shah said.

Another encouraging factor for the segment, developers say, is the flow of foreign investments. According to Mumbai-based Nahar Group's Vice Chairperson, Manju Yagnik, "foreign investments are coming mainly into commercial projects" and it is felt that foreign direct investments are safer in the commercial realty than in the residential segment.

Real estate players are also hopeful of more demand coming in the commercial segment in the form of investments.

Wadhwani said: "Individuals with deep pockets are looking forward to invest in commercial real estate where the demand will only increase along with supply."

"Because from the investment point of view, commercial probably will give you much higher return than residential at this time," Yagnik said, adding: "Residential has become a little stagnant and probably in the coming one or two years you will see there is a better boom in commercial stocks probably than residential."

However, Dharmesh Jain, Chairman of real estate group Nirmal, feels that "despite investment potential, commercial real estate has not remained preferred investment option". He however added that newer markets are emerging as investment destinations for commercial and retail investments.

The market has also been supported by the confidence-building measures as a result of RERA, which initially had caused a major disruption to the market.

"Developers have become happy that it (commercial real estate) has become more organised and more systematic. It is a win-win situation for both the buyers and the developers," Yagnik of Nahar Group told IANS.

On GST and demonetisation, which were major blows to the already laggard real estate market, Shah from Parinee Group told IANS: "GST has increased the burden but gradually customers and developers are absorbing the same in their scheme of things." He said demonetisation was now a thing of the past.

A significant trend emerging in the commercial real estate segment which has raised hopes of better demand is the concept of "co-working spaces". Developers feel this concept would bring in more of rental and office space demands.

In co-working spaces, organisations share office spaces with flexible time periods at comparatively lesser cost than renting a specific office space, making market players call it the affordable segment of office spaces.

Pranay Gupta, Co-founder of 91springboard, co-working space provider, described the demand in the segment as "tremendous" and said that other than start-ups, venture capital funds, non-government organisations and many listed companies work out of co-working spaces.

"You will see commercial real estate builders doing tie-ups with co-working firms and every organisation with less than 300 people is likely to move to co-working spaces," he added.

"With technology changing so much and the cloud being available, to connect anybody, anywhere, it has become the focus of companies to allow for flexibility to their employees and to look at real estate in terms of an outsourced asset rather than an owned asset," said Harsh Lambah, India Country Manager, International Workplace Group.

Lambah also said that in a few years, a large part of commercial real estate would be covered by the co-working concept.

Although the current trend in the commercial segment is mostly positive and developers largely see better days coming, finance and availability of land are an issue, as per the market players.

Jain of Nirmal said: "Limited accessibility of developable land in the metro cities in India adds to the existing problem of concentrated commercial development. We expect the government to develop infrastructure in emerging location, which will induce connectivity and inspire commercial investments."

Shah was of the opinion that project financing for commercial real estate should be made more easily available and at lower interest rates.