Commercial Real Estate in India Faces Uncertainty
IT Sector's Dominance in Office Space Demand
India's emergence as a leading IT and ITES destination has led to a surge in demand for high-quality office space. However, this dependence on a single sector could have far-reaching consequences. According to Vakil from Knight Frank, there is already a noticeable slowdown in the commercial property market.
Leasing Preferred Over Outright Purchase
Vakil noted, 'In a falling market, leasing is a more practical solution, as there is no demand for outright purchases.' The IT and ITES sectors account for approximately 80% of all commercial space in India, with 70% of this industry being dollar-denominated. This has significantly impacted Bangalore, India's IT capital, and to some extent, Hyderabad.
Retailers Feel the Pinch of High Rentals
Retailers, a substantial part of the commercial scene, are exercising caution due to higher rentals, which exert greater pressure on margins. Kishore Biyani, Managing Director of Future Group, emphasized, 'Ultimately, it is a question of affordability in retail.'
Navigating Soaring Commercial Rates
Biyani attributes his group's protection from the boom to having signed up for properties beforehand, stating, 'We have been quite docile over the last six months.'
Significant Developments in Mumbai's BKC
In March, five plots were offered for sale in the Bandra Kurla Complex (BKC), Western Mumbai's business district. Two plots each were allocated for residential and commercial use, with one reserved for a clubhouse. Notably, only one commercial plot was sold to Jet Airways at Rs 3.44 lakh per square meter, against a reserve price of Rs 3 lakh, with no other bidders. Star Light, a joint venture between the Ajay Piramal Group and Sunech Realty, acquired both residential plots at over three times the reserve bid price. However, one commercial plot and the clubhouse plot remained unsold, with a combined area of over 12,500 square meters and a reserve price of Rs 3 lakh per square meter.
Insights from Enam Securities
A report by Enam Securities attributed the lack of interest in commercial space in BKC primarily to the high reserve price.
Indiabulls' Investment in Central Mumbai
In 2005, Indiabulls acquired 22 acres of mill land in central Mumbai for Rs 720 crore. Gagan Banga, CEO of Indiabulls Financial Services, highlighted the encouraging response to this investment, with rental offers at around Rs 300 per square foot, aligning with their expectations.