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More growth ahead for commercial real estate this year

Author: Debasis Mohapatra/Friday, January 26, 2018/Categories: Real Estate

More growth ahead for commercial real estate this year

Mumbai: After a steady rise in demand last year, commercial real estate is likely to gain momentum in 2018 on the back of rising space absorption from companies operating in IT, financial services, manufacturing, logistics and retail sectors.

With global economy showing signs of recovery and impact of measures such as demonetisation and GST fading on Indian economy, the country is likely to grow at a faster rate in the next financial year.

“As per IMF’s latest forecast, India is likely to grow 7.4% in FY19 against 6.7% this year and rise up to 7.8% in FY20. With the growing economy, it is fairly certain that global companies will continue to be bullish on India's prospects. In other words, the overall demand for commercial real estate will sustain in 2018 as well,” Anuj Puri, chairman of Anarock Property Consultants told The Finapolis in an email reply.

He, however, said that there are bound to be demand variations across the top cities of India, depending on the vacancy rate and supply addition.

According to the property consultant, demand this year will be primarily driven by manufacturing, IT-ITeS, co-working space operators, BFSI and logistics & warehousing companies.

According to a report by real estate consultant Cushman and Wakefield, a total of around 30 million square feet of commercial real estate was absorbed in 2017. Last year also saw more than 50 large transactions taking place in the commercial real estate space. Some of the major transactions involving large and small corporations include Microsoft, TCS, Accenture, Alibaba, Amazon, Deloitte and Google among others.

Cities like Bengaluru, Pune, Hyderabad and NCR witnessed the maximum demand in 2017 and analysts are of the opinion that this trend would mostly remain the same. “Top cities such as Bengaluru, NCR, Hyderabad, Mumbai, Chennai and Pune are likely to remain in highest focus in 2018,” Puri of Anarock said.

Meanwhile, an analyst from the rating agency ICRA also echoed similar sentiment. “As per our estimates, absorption level will remain at last year’s level,” a senior analyst with rating agency ICRA said.

Analysts, however, pointed out that despite higher demand, rental yields wouldn’t see much rise this year. “Rentals in good quality like Grade-A office buildings having limited vacancy are likely to witness an upward trend in 2018. However, overall rentals are likely to grow in low single-digits only,” Puri said.  

On private equity (PE) investment in commercial real estate, analysts also said that PE players would continue to invest in this segment. “PE investment is likely to sustain in 2018 as well. With listing of REITs (Real Estate Investment Trust) on the anvil, investors will be looking to expand their portfolios by adding good quality office assets,” Anarock’s Puri said.

According to Venture Intelligence, private equity investments in real estate sector during January- October period of 2017 reached $3.16 billion with most investment flowing into commercial real estate segment.  

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