It is easy to be a sceptic today. There is difficult news all around. Amid crude prices falling, there is global turmoil as China slows down. Except I for India, BRICS are hurting.
The news from India too isn’t all good. Leveraged India Inc, muted capex, stock market volatility, contraction in the latest IIP (index of industrial production), and banks grappling with high NPAs – the list of concerns is long here. And now of course things seem to be getting tight even in the frenzied world of startups.
When RBI governor Raghuram Rajan said that “some jitters are really jitters about jitters” perhaps this is what he had on his mind.
Just look at the data on the office space offtake in the country for 2015 and trends for the future. 2015 was the best year ever for the commercial real estate leasing in the country. The figure stood at 38 mn sq ft (grade A office in top 7 cities), according to the real estate consultancy firm CBRE. All experts expect the growth to continue if not accelerate in 2016.
Looking beyond just the numbers, I cannot help but feel a bit optimistic about the future. There are multiple reasons. Let me explain. Moving, upgrading, buying office space is a logistically difficult, time-consuming, well-thought through and capex-heavy decisions. The sharp uptick in leasing activity in 2015 means that companies have the confidence and the visibility into their India business to take such decisions.
Real estate experts say that many of these companies have had real estate needs much earlier but they were dithering. The political change and even if not-so-convincing economic build-up has been enough to now help them make up their mind. So while India Inc has many complains today notice what they do rather than what they say (the latter also is partly for its optic effect). Remember, typically corporate leases, especially by MNCs, are signed for 10 years. And shifting offices require expenses on big upfront investments in fit-outs. So as far as corporate office decisions are concerned, companies have to be pretty sure to make the move.
There are three other things I find quite comforting about the way commercial real estate is shaping up. One, foreign investors – from Hines to Ascendas to Blackstone – are seriously looking at investing more in commercial real estate in India. Ascendas for example says it will be developing over 5.6 million sq ft of business space in India in the next two-three years. That is impressive. Hines has similar plans.
Domestic developers like DLF, Prestige Group too are looking at green-field commercial projects, which had almost stopped in the past three-four years. That too is good news.
Finally, MNCs – who have not looked at buying commercial real estate in the country – are now doing it. Many MNCs like Abbott, Adobe, Honeywell, Sandisk and homegrown companies like Axis Bank have been investing in commercial real estate in India. Their interest and the willingness to invest so much money in commercial assets does signal tremendous confidence in the market.
So with all this, is the turnaround in the residential sector around the corner? Wait for 12-18 months, say experts. As the residential sector is still reeling under high inventory and poor demand.