Impact on Real estate business in India: A look into the top 3 trends 2018

Real estate business has been a debatable area for the past few years.

However the year 2017 was a dramatic and decisive year for Indian economy. While demonetization and GST impacted the pace of the residential real estate sector across the country, the National Capital Region (NCR), particularly, saw a glut. Plenty of builders projects came under the microscope for lack of completion. Consequently, buyer’s trust in them ebbed.

As the saying goes “ When there is a dark side, there has to be a bright side” to balance it. The current Indian economy scenario is moving to a brighter side and projected to grow at 7% over the next three years and recovering from the adverse repercussions of demonetization and implementation of GST), the commercial real estate market is likely slide up the ladder and achieve stability.

Few data analysis have been recorded across few cities and this is what it had to show:

  • If pricing aspect is taken, 25 per cent of builders expected projects in the city to appreciate on the basis of cost per sq.ft, followed by Hyderabad and Pune and reason being Bangalore builders are planning to complete 70% of there projects on time and Pune, Hyderabad showing a positive intent in both commercial and residential spaces.
  • If affordability aspect is taken, a survey indicated that 45 per cent of the builders were planning to launch affordable housing projects while 34 per cent still preferred the mid-segment.
  • In terms of commercial/office leasing Bangalore grabbed a 36% share of the market and remained a front runner in office leasing with record breaking leasing of 15 million sq ft, followed by NCR (18%), Hyderabad (13%), Mumbai (12%), Chennai (11%) , Pune (8%) and Kolkata (2%).
  • Within Mumbai, the western suburbs’ micro market registered a growth of 2.5% on average rentals, followed by secondary business district of Lower Parel at 2%, eastern suburbs at 1%, and Bandra-Kurla Complex at 1%. Rents in Central Business District of Nariman Point continued to slide and declined by 4%.

The real estate market is likely to be dominated by the following 3 trends in 2018:

Key focus to remain in work space strategies flexibility

One of the biggest shifts in workplace strategies in India is likely to be the improvement on how much degree of flexibility is offered to occupiers by developers. The trend is led by the Global leaders like WeWork and Regus in the co-working space and leased a substantial office space in 2017.

As per Colliers Research, in the last two years (2016 and 2017) flexible office operators leased more than 4.6 million sq ft (0.4 million sq m) and co-working operators will lease about 8 to 9 million sq ft (0.7-0.8 million sq meters) by 2020.

Pre-commitments and BTS to remain popular

The main sector of Information Technology and Information Technology Enabled Services (IT-ITeS) locations , where vacancy rates are in single- digit, such as Bengaluru, Hyderabad, Pune and Chennai, occupiers continued to prefer built to suit and pre-commit large office spaces for the year 2017-18. Even in the high-vacancy markets such as Gurugram witnessed the trend of pre-commitments picking up.

Occupants whose lease is under expiry, are willing to try out other location options where the rentals are reduced. On an average in 2017, the preferred locations witnessed rental growth of 10-15% in most cities; the average rents increased by 3-4% in technology driven cities while traditional cities such as Delhi, Mumbai and Kolkata witnessed 1-2% decrease in rents

Tier-II & III cities for back-office requirements

Tier II and III Indian cities are catching the eye of many technology and e-commerce companies for their expansion. The companies are exploring these cities in search of cheaper resources as Tier I cities are increasingly becoming expensive and subsequently the manpower cost is also increasing.

Given the government’s push for smart cities development, the firms should consider expanding in the cities where the state governments intend to spur growth by offering more fiscal and non-fiscal incentives and building crucial infrastructure projects such as airports and railways.

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