Commercial estate remains buoyant in India

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BANGALORE: India continues to witness healthy transactions in its commercial market, the Jones Lang LaSalle Pvt Ltd (JLL) India Monthly Real Estate Monitor said in February.

Leasing activity in Bangalore’s key precincts such as the central business district (CBD), Old Airport Road, Outer Ring Road, Old Madras Road and Electronic City has remained resilient, especially in the office market, the real estate services firm said.

“After the new government took charge, overall sentiment among occupiers and investors have been positive, and we expect this optimism to continue over the next two to three years. In 2015 and 2016, India is expected to register office space absorption of 30 million sq ft each year,” said JLL India country head and chairman Anuj Puri.

“We have seen sales increasing in cities like Delhi and Mumbai in 2014. Over the longer term, the number and volume of sales transactions are likely to improve further, resulting in a boost to investments. The government’s many positive policy initiatives will also help investments into India to rise,” said Puri.

Bangalore’s CBD reports the highest transactions in the office market, from 10,000 Indian rupees (RM589) to 22,000 rupees per sq ft (psf), with rental value of 80 rupees to 130 rupees psf. 

Pune in Maharashtra and Ahmedabad in Gujarat have also witnessed an increase in office space rents.

However, very few office buildings are sold individually. “Most of the projects are offered on lease to occupiers, so developers own many projects in major cities. That said, a certain number of office assets are strata sold (sold to many investors). The ratio of lease to strata-sold office spaces in the country is about 70:30,” said Puri.

The ratio for local versus foreign investors in the commercial segment is steady.

“If we consider investment in office space post-2011, domestic investment is to the tune of 27%. The proportion of multinational corporations and local companies is approximately 60% and 40% respectively,” said Puri.

In terms of the retail index, Hyderabad’s retail space rents have increased on high demand with key precincts such as Banjara Hills recording a capital value of 11,000 rupees to 14,000 rupees psf, with rental value of 110 rupees to 140 rupees psf.

Ahmedabad’s retail market has also witnessed notable growth in categories such as quick service retail formats and retail banking.

The country’s huge economic turnaround, especially in the commercial estate sector, is attributed to the Indian government veering away from “tax terrorism” and proactive business reforms since Prime Minister Narendra Modi took office in May 2014.

“Since getting elected, the Modi-led government has remained business focused. A few of the key initiatives for real estate specifically involve foreign direct investment relaxation, real estate investment trust (REIT) commencement, resolving issues with a land bill and a road map of housing for all by 2022,” said Puri.

“The government has also opened up the defence sector for foreign investment, while also providing much-needed light on the roll-out of the goods and services tax. A higher focus on infrastructure and foreign investment have also been highlights to date,” said Puri.

India’s finance ministry has also floated a draft cabinet note to amend the Foreign Exchange Management Act to permit overseas funds in REITs, which received a policy green light.

Puri noted: “The potential of REITs in India will be to the tune of US$15 billion (RM54.45 billion) in the next three years. The calculation is on the assumption that 50% of REIT-compliant offices in the top seven cities (203 million sq ft) will get listed as REITs. Nonetheless, amendments may not be required to permit overseas funds as REITs will be listed vehicles.”

 

This article first appeared in The Edge Financial Daily, on April 10, 2015.