Shooting Star

Commercial real estate is booming

While the residential real estate market is emerging from a steep downturn, the commercial market is booming with high transactions. Slow supply of quality office real estate has meant low vacancy levels, firming up rentals. Recent reports underline the growth, and point out that corporates are probably preparing for higher economic growth to take hold in the coming quarters.

In April, real estate services and investment firm CBRE stated that India’s office market has recorded robust activity over the past two years. In 2016, total office stock crossed 500 million sq.ft. By 2018, the number is expected to cross 600 million sq.ft., or a 20 per cent rise in two years. The company further said that over the next two years, occupiers are expected to spend almost $48 million on leasing office space while new commercial assets worth approximately $6 billion would be completed. Colliers, another real estate services company, recently reported that office take up in the second quarter of 2018 was at 12.6 million sq ft. The overall absorption for the first half of 2018: 24 million sq ft. Bangalore accounted for the highest share of absorption at 34 per cent, followed by the National Capital Region (NCR) at 28 per cent, and Mumbai at 14 per cent. The company also noted the rise of co-working spaces that now accounts for about 7 per cent share of leasing in the first half of 2018.

The average rents, Coillers said, may rise by 3-5 per cent annually over 20182021 driven by premium buildings in preferred locations.

The other large commercial piece, warehousing, is shooting up as well. Services firm JLL estimated that India’s Grade A and B warehousing stock totalled 140 million square feet in 2017. This would grow at a CAGR of 21 per cent to 247 million square feet by the end of 2020. Close to Rs 45,000 crore is likely to be invested in creating storage facilities across India between 2018 and 2020.