The year 2012 has
remained sluggish in terms of economic growth, largely due to high interest
rates and poor industrial production. Indeed, the index of industrial
production rose by just 0.4% in April-August 2012, as compared to 5.6% in the
same period of 2011, says Anuj
Puri, Chairman & Country Head, Jones Lang LaSalle India, who makes an
analysis of residential and commercial real estate in 2012.
Manufacturing activity,
which contributes significantly to India's GDP, also took a big hit in 2012.
Inflation remained high, impacting sentiments and investor interest across
businesses – including real estate, he says.
.
Residential Real Estate in 2012
As
has been the case in the past, the larger cities of Mumbai and NCR-Delhi
recorded healthy absorption of residential units during 2012, with a 60%
contribution to the overall absorption. Chennai and Pune were among the other
two cities that increased their share of absorption during 2012 to 26% from the
23% recorded a year ago.
At a country level, a total of 160,622 residential units were launched in 2012, as compared to 154,701 units for the corresponding period of 2011. From the pricing perspective, the average residential capital values in 2012 appreciated in the range of 1-3% y-o-y.
Among
the top 7 cities of India, the capital value growth in Pune and NCR-Delhi was
the highest, while Hyderabad and Bangalore saw a slower rate of capital value
growth. There is still no price correction on the cards, but the quantum of
appreciation definitely reduced significantly in all the top seven cities of
India in 2012.
Although demand showed signs of improvement
with the approach of the festive season, developers are still struggling with
rising inventories and have attempted to sell off their existing stock via
out-of-the-box marketing techniques and pricing mechanisms to attract end users
and investors.
- Infrastructure deficit continues to be a key restraint for the growth of residential markets across India.
- Overpricing has been an issue in Pune, Hyderabad and Kolkata, resulting in a relatively smaller share of absorption from these cities during 2012.
- From a supply perspective, Hyderabad and Kolkata saw a decline in the number of residential units launched, accounting for less than 2% respectively of the total in 2012YTD.
Commercial
Real Estate In 2012
The secondary business districts (SBDs) of Mumbai,
Bangalore and Pune, followed by central business districts (CBDs) of Bangalore
and Gachibowli in Hyderabad, began emerging as landlord markets. This is
primarily because these areas have a lower-than-average vacancy levels from a
national perspective, and also because of the relatively higher rental value
change in these submarkets as compared
to the corresponding trough levels in the past.
The CBDs of NCR-Delhi, Mumbai, Pune and Hyderabad
remained neutral markets because of negligible vacancies (5-10%) as compared to
the national average of 19%. Also, these locations saw persistent market
stagnation because of negligible rental growth and lower vibrancy.
The suburban
business districts of NCR-Delhi, Mumbai, Chennai and Kolkata, which have
higher-than-average vacancies, remained occupier friendly markets. Higher
vacancy expectations continue to exert short-term pressure on their rental
value growth.
In 2012, the cautious occupier sentiment that resulted from the on-going global
uncertainties was one of the key reasons behind slow commercial property
leasing activity in the major cities of India.
With domestic office occupiers going slow on
expansion, MNC occupiers have been delaying deal closures as they have to go
through multiple levels of approvals to execute expansion plans amid sustained
cost pressures.
Among
the top seven cities, Mumbai and NCR-Delhi recorded a y-o-y absorption drop of
around 47% and 26% respectively during 2012.
The
year was defined by a notable decline in absorption of office space across most
of the cities in India from the 2011 levels. However, the larger cities of
Mumbai, NCR-Delhi, Bangalore and Chennai contributed to a healthy 72.5% of the
country’s net absorption of commercial real estate. In fact, the share of
pre-commitments to absorption in 2012 was more than recorded during the
previous year.
Retail Real Estate in 2012
With
an operational stock of close to 65 million sq ft during 2012 YTD, the retail
mall supply across the top seven cities of India slowed considerably as
compared to the supply recorded in 2011.
With
a drop in supply of over 65%, new completions in 2012YTD were at a new low when
we consider the trend of the past five years (since 2007). Barring Hyderabad,
all cities recorded completions during 2012, albeit at a slower pace than
witnessed in 2011.
Mumbai, NCR-Delhi, Bangalore and
Chennai together absorbed 81% of the total retail space in 2012. This is
significant, considering their consolidated contribution of 70% in total retail
space absorption in 2011.
