Sale of residential realty to follow commercial sector success in 2015

From ET Realty

MUMBAI: The residential property market may be in a funk but office property is literally flying off the shelves. Sales of office spaces across the country jumped the most in 2015 and it looks set to maintain its momentum this year as well.

About 38 million square feet of corporate real estate space was sold in India’s top seven cities in 2015, the highest till date, a CBRE report said.

The demand led by Bengaluru with 32% share of the total absorption across leading cities, followed by the National Capital Region with 23% share. Suburban and peripheral office districts of major cities attracted steady occupier demand in the last quarter of 2015.

Experts believe that office property growth will feed into the residential market soon and is often a leading indicator of how home sales might perform in future.

“The positive demand is indicative of an overall improved economic sentiment among domestic and international corporates.

It will result in more jobs getting created and boosting confidence among home buyers,” said Anshuman Magazine, chairman and managing director of CBRE South Asia. “I feel, this will gradually bear a positive impact on residential market with improved demand for projects with right price point that fits specific markets.”

The growth is reflected in stock market performance of realty developers with leasable or saleable office spaces. In 2015, shares of Godrej Properties and Marathon Nextgen Realty rose 32% and 43%, respectively, while Brigade Enterprises gained 2% in the backdrop of most other realty shares witnessing 2-20% drop.

Real estate analysts expect shares of developers with certain markets exposure to fare well given the fundamentals and positive micro market scenario.

“Shares of companies with exposure to commercial property market in Bengaluru are expected to do well as the market has low vacancy levels and the time is right for appreciation in rentals.

Among the listed players, Prestige Estates and Brigade Enterprises can be a good pick, while DLF is expected to be favoured for its exposure to Cyber City, a strong micro market in Gurgaon. BKC is also a strong market,” said Sandeepan Pal, analyst, real estate, Motilal Oswal Securities. Companies, especially in the IT/ITeS, ecommerce, financial services and healthcare sectors, have been snapping up office space across major cities.

Interestingly, small and mid-sized deals with less than 50,000 sq ft space accounted for 85% of transactions in 2015, indicating the growth is wide-spread and not restricted to top corporates.

According to CBRE, prominent micromarkets with good demand included Gurgaon in NCR; Powai, Vikhroli, Kanjurmarg, Thane and Navi Mumbai in the Mumbai Metropolitan Region; the Outer Ring Road in Bangalore; the IT Corridor in Hyderabad; the Old Mahabalipuram Road stretch along Perungudi in Chennai; Viman Nagar in Pune; and Salt Lake Sector V in Kolkata. Given the change in demand outlook, developers are reviewing their business plans and strategies.

“The improvement can be easily gauged by rising number of enquiries for office space. Be it outright or lease basis, offices are being picked up clearly for expansion and future growth,” said Vipul Shah, MD, Parinee Group.

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