Over­sup­ply, Weak De­mand Hit Commercial Realty Biz

The Economic Times - - Companies -

Prices of commercial property, which in­cludes of­fice space as well as shops in malls and shop­ping com­plexes, have fallen 30% from their peak val­ues in 2008 be­cause of a glut in sup­ply and weak de­mand over the past few years. A fifth of commercial space is va­cant in In­dia be­cause a slow­down in the econ­omy has re­duced the fre­quency with which new businesses come up and ex­ist­ing ones scale up. Ad­di­tion of new space has made the sit­u­a­tion worse, say ad­vi­sors.

Ac­cord­ing to property con­sul­tancy JLL, commercial property prices in Mum­bai city have dropped 34.7% from the peak of 2008, while those in the sub­urbs are down 30.7%. The sit­u­a­tion in Delhi is worse, with prices down 38.7%. In Gur­gaon’s off-prime ar­eas, commercial space is avail­able at rates 39.3% cheaper than in 2008, while in Noida, the prices are down 19.2%. Among other places, prices are down 7.3% in Chen­nai and 8.3% in Pune.

The only mar­ket that is in the pos­i­tive ter­ri­tory, though only marginally, com­pared with the 2008 level is Ban­ga­lore, where prices are up 0.2%. Prices have fallen the most for mall space: the aver­age price of shops in malls has more than halved be­tween 2007 and 2013. “Prices of commercial property have fallen more than even res­i­den­tial property,” said Deepak Parekh, chair­man of In­dia’s largest mort­gage lender HDFC.

Prices in mi­cro­mar­kets within cities dif­fer. Ac­cord­ing to property re­search firm Li­ases Fo­ras, prices of good qual­ity commercial space in the Lower Parel area in cen­tral Mum­bai, which were hov­er­ing around .` 30,700 per sq ft in 2008, are now down to around .` 17,000, a 45% drop. At the prime Ban­dra-Kurla Com­plex in the city, prices have dropped 24% from around .` 38,000 per sq ft in 2008 to .` 28,800 to­day. In the NCR, Noida’s sec­tor 62 area saw prices fall 29% from .` 8,500 per sq ft to .` 6,000 to­day.

“Our pitch to cor­po­rates to­day is to go and buy an of­fice as prices are still low,” said Vivek Dahiya, chief ex­ec­u­tive of GenReal Property Ad­vis­ers. “If they can’t buy, they should lock in long-ter m leases as both prices and rentals will only go up from here.” Start-ups, small businesses and cor­po­rates are us­ing this op­por­tu­nity to buy space. A startup firm in Mum­bai re­cently pur­chased 3,000 sq ft of space in the And­heri area for .` 11,000 per sq ft. The same lo­ca­tion in 2008 was sell­ing for .` 14,500. “Prices of such prop­er­ties are very ef­fi­cient to­day. Many en­trepreneurs are con­sid­er­ing buy­ing property rather than leas­ing it,” said Pankaj Kapoor, MD of Li­ases Fo­ras.

Un­til the Lehman crash in 2008, which trig­gered the global eco­nomic cri­sis, of­fice rentals and cap­i­tal val­ues were post­ing steady in­creases and sev­eral de­vel­op­ers were ex­e­cut­ing commercial projects across the coun­try. Post-crash, how­ever, prices dropped con­sid­er­ably and the prob­lem was com­pounded over the next few years as the un­der­con­struc­tion sup­ply came on board, putting fur­ther pres­sure on pric­ing.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.