Indian commercial property market shows early sign of recovery

According to the latest RICS Global Commercial Property Survey, sentiment in real estate markets has been reasonably positive outside of Europe. This is most pronounced in Asia, where the results for both occupier and investment markets paint a fairly robust picture. Both rental and capital values have been indicating healthy increases in countries such as Thailand, Hong Kong India and China.

In India, macro-economic numbers for both industrial production and exports are showing a slightly better tone. However, it is a little premature to be confident that this trend will prove to be sustainable in the long run. The better pattern for realty markets in the country is visible in the investment market, which is also starting to filter through to the occupier side as well. In India, investment enquiries edged up and elicited a positive trend for the first time since 2011. 

Consequently, forward looking measures for expected transactions and capital values are also staying upbeat, spilling over from the positive results of the previous quarter.

Specifically, in the occupier market, rental expectations are particularly upbeat in countries such as Thailand, Russia, and Canada. This trend can predominantly be attributed to strong tenant demand and in most cases, falling availability. On the other hand in Hong Kong, China, India and the UAE, demand is growing, however available space is also on the increase, therefore rental values are expected to increase, but not by much over the coming months. Across Europe, including the UK and Oceania, rents are expected to fall as a result of flat or declining tenant demand and rising availability.

Indian scenario

In fact, India has improved its overall global ranking by 10 places with respect to occupier demand and available space, ranking 9 in Q4 as compared to 19 in Q3 2012. While India still ranks behind Thailand, Hong Kong and China on these parameters, as was the case the previous quarter as well, it has however improved its ranking considerably, as a consequence of which it has improved its performance over Japan.

On the investment side, enquiries have once again picked up pace during the last quarter of 2012. 

Both investment activity and prices are looking to be positive for the second consecutive quarter, with enquires for the office segment being the most pronounced, followed by the retail sector. Unfortunately, the trend for industrial space continues to remain negative for the second successive quarter. Overall India is ranked 7th globally in terms of investment demand expectations this quarter as compared to a dismal 22nd rank in Q3.

It is also heartening to see that the level of distressed properties in the country is now looking to stabilize. While the supply of such properties is expected to continue rising in the early part of 2013, the pace will be a lot more modest than has been the case in the recent past. Demand for distressed assets rose at a slightly slower pace in Q4 as compared to Q3 and Q2 with India ranking 16 as compared to 17 in Q3 and 12 in Q2. Even development starts in the country are looking positive.

Commenting on the current and expected market environment in India, RICS members said, "The government's decision to allow 51% FDI in multi brand retail has cheered both retail and real estate sectors. From real estate point of view, it will open up multiple opportunities in the medium and long term, as the demand for quality real estate would rise. Presently, some retailers are cash strapped and this will provide a sort of bail out option to them. With flow of fresh investment into the retail sector, it will trigger investment in real estate at both the front and back end. At the front end, retail store spaces will see investments, while in the latter better quality warehouses could be seen.”

Vacancy in malls across the board ranges between 15-20%. Opening of FDI in multi brand retail would surely improve the uptake of present vacant retail spaces and vacancies should improve by at least 5-7% in next 2 to 3 years. There should be an increase in demand for commercial real estate and increased investor confidence, as presently there is a mismatch in lease rates and capital values. All this would motivate developers to build quality shopping centers with a clear vision to long term profit," they said.