«Major office markets in India will revive by Q2 2010 with increased interest from tenants and a downward correction in rentals taking place, according to DTZ’s latest research, ‘The Second Coming’ issued today.
Marred by a liquidity crunch, slackening demand, piling inventory and falling rentals for over a year , the real estate markets of India breathed a sigh of relief with visible signs of recovery towards the third quarter of 2009. At a time when the worst for commercial real estate seems to be over and recovery appears visible, DTZ undertook a study to examine how this recovery will come about and analyse what this means for the future.
‘The Second Coming’, the latest study by DTZ reviews the last twelve months performance of commercial real estate markets across six Indian cities (namely Delhi NCR, Mumbai, Bengaluru, Kolkata, Pune and Chennai) against its estimates of 12 months ago and predicts the recovery path and key drivers for each market going forward over the next five quarters.
Priyankar Bhikshu, Head of India Research at DTZ comments, “The pace and scale of market recovery will be led by the Tier 1 cities of Delhi NCR, Mumbai and Bengaluru. Tier 2 cities such as Kolkata and Chennai will see a gradual recovery in thelater part of 2010 while the Pune market is unlikely to see any major changes.”
Of the 84 million sq ft of supply scheduled for completion across these six key Indian cities, only 66 million sq ft will become available in the next five quarters. This moderation in supply of approximately 18 million sq ft is expected to ease the downward rental pressure in major markets.
After correcting between 25 to 40% across almost all markets over the last year, rentals are now getting support at the development cost level in some markets. No further significant price correction is expected for the next six months.
Vacancy levels, despite healthy absorption, are likely to increase in the first half of 2010 and then stabilise or fall in the later part of next year. This will prevent any substantive price revival in the market.
IT-ITES will continue to drive the absorption volume. The Telecom sector is expected to be another significant demand driver over the next 12 months. The banking, financial services, insurance and manufacturing sectors will drive local market dynamics for some cities.
It is only after peak vacancy is attained that a price revival can be expected. Total market revival is likely to be achieved by Q2 2010» (CS della Società).
