“The retail segment has been able to corner 8% of the total Private Equity investment pie in the first five months of the year 2016 itself. As of May 2016, the total PE investment into Indian retail real estate stood at USD 149 million or INR 10 billion”
Commercial real estate is a complex matrix. There are many factors which impact its operations; majority of them driven by macro-economic dynamics. Thankfully, Mr. Modi-led NDA Government’s fiscal reforms are making the macro-economic scenario favorable for investments in India. The efforts have started showing results. The retail sector has been able to corner 8% of the total Private Equity investment pie in the first five months of the year 2016 itself. As of May 2016, the total PE investment into Indian retail real estate stood at USD 149 million or INR 10 billion. A report by JLL India, one of the leading property consultants, suggests this.
In the month of November 2015, Union Government of India relaxed its FDI norms for real estate and construction and removed all the three prominent clauses which were restricting flow of investments. Eventually, it opened a floodgate for FDI in Indian real estate and construction sector. As per a recent report by Cushman & Wakefield, the total private equity investments from foreign funds in Indian real estate increased 33%, from USD 1,676 million in 2014 to USD 2,220 million in 2015.
The boost in the flow of PE funds has uplifted sentiments all over India. Though there are particular markets which are doing exceptionally good. Let’s analyze four such markets which are strengthening their prominence in the commercial realty segment. The analysis is based on the report by Colliers International.
The Noida commercial market continued to be on its recovery trajectory on the back of IT-ITeS sector with office absorption ticking over 0.38 million sq ft in 1Q 2016. Expansion and relocation by IT-ITeS companies were the primary demand drivers, which continued to be the dominant sector of leasing office space in Noida during this quarter. There was also some demand from publishing and manufacturing companies who leased smaller office spaces in Institutional Sectors. Location wise, about 54% of transactions were concluded in sectors along Noida Expressway, followed by 43% in Institutional Sectors and 3% in commercial sectors.
Gurgaon’s commercial real estate market recorded about 0.70 million sq ft of office space uptake in the first quarter of 2016 as compared to 0.45 million sq ft in previous quarter but about 30% less from the figures in Q1 2015. IT-ITeS and BFSI with 59% and 17% share, respectively, remained the prime sectors contributing to this demand. Apart from this, manufacturing and pharma sectors also leased smaller office spaces during the quarter. Going forward, an increase in office absorption is expected with clients looking to consolidate their various offices under one roof.
Hyderabad witnessed robust demand from corporate occupiers in the first quarter of 2016 as gross leasing volume of 1.27 million sq ft was noted in the city. Though this represents a quarterly decline of 15%, major IT, digital and e-commerce companies announced plans for huge investments to bolster their expanding network of technology development centers and facilities in Hyderabad. IT-ITeS sector accounted for 82% of cumulative deal volume. Despite a dip in absorption, it is evident that the state government’s measures to attract leading global players are paying off as expansions by existing tenants accounted for as much as 37% of total deal volume. New entrants to the city accounted for more than a third of the total leasing volume in this quarter.
During the first quarter of 2016, Bengaluru witnessed total office sector absorption of 2.65 million sq ft noting a 13% quarterly uptick over the last quarter. IT-ITeS, (also comprising of technology start-ups and e-commerce companies) continued to remain the leading sector driving office sector demand with 88% share in overall absorption. Apart from this, BFSI comprised 6% share in total deal volume. Going forward, the growth of new sectors such as e-commerce, technology giants and entrepreneurial ventures will drive strong office sector demand in the city.
The author is a real estate consultant. Views are personal.