“It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate”. These are the words of a person who may probably be considered as one of the most famous of Real Estate investors, Donald Trump. If you read this one line very slowly, giving thought to each of the words, you would know why we have begun with it. It summarises every aspect that goes into making an asset class capable of delivering superior returns. Tangible – you can see it standing out there and be sure it won’t just vanish in thin air one fine day. Solid – it is probably the only asset class which yields good quality returns uniformly over a longish period of time. So no matter how loud the noise about this asset class being down and out grows, over a period of time, Real Estate has delivered good value to investors.
While we talk about Real Estate as an investment, we are yet to write about the basic necessity that this asset class caters to; housing. It is every rational human mind’s dream to own a house. The demand for Real Estate thus is fuelled by two forces; the demand from the end user perspective and the investment demand.
We have covered the happenings around Real Estate a number of times earlier in our magazine. But it certainly pays to revisit the dynamics of this very important sector at regular intervals. With this in mind, in this issue, we present you a detailed analysis of the Real Estate markets in two of the most important locations. Bangaluru has been developing at a rather fast clip thanks to the explosive growth that IT has brought in there. The demand for commercial as well as residential properties has been ever rising in this city. How does the future look like? Does the market offer a good opportunity going forward? Here are the answers. Another city or rather region that is very important from the Real Estate market perspective is the Delhi NCR region. Here too, development on the real estate front has been tremendous. Here is what the present state of affairs on the Real Estate front in this region looks like.
For the purpose of this brief report, we have solicited views from two of the most signifi cant fi rms providing services in this sector; Jones Lang LaSalle and Knight Frank. We are sure our readers would get a good perspective of Real Estate markets in these two markets from what has been presented.
Bengaluru has been synonymous with IT for long now. The sector has been the key demand driver for real estate in the city, causing an upswing in the overall development of the city. Although IT continued to drive the real estate market in Bengaluru, there was a noticeable slowdown due to the slump in global economic conditions.
The Indian IT sector derives more than 70 per cent of its revenues from international markets. The sector has been affected since the last few quarters due to weak global macroeconomic conditions. This has directly resulted in weaker demand. However, the situation seems to be improving since the beginning of 2013. Controlled new supply coupled with stable absorption will ensure market health for 2013.
Residential Real Estate
Areas like North Bengaluru, Outer Ring Road and Whitefield have been in focus for a while now and will continue to see growth. “In North Bengaluru, infrastructure development, the controlled office space supply coming up and this region’s proximity to Bengaluru International Airport will provide continuing impetus in 2013”, said Karun Varma, Managing Director – Bengaluru & Kochi, Jones Lang LaSalle India. The area has seen massive capital appreciation so far and the potential for more just adds to its attractiveness.
On Outer Ring Road, projects on Sarjapur Road continue to enjoy their advantageous proximity to the IT growth corridor. The region has seen rental appreciation of 7-8 per cent in 2012. Investments in the areas of IT and the planned Aerospace SEZ will lead to an upswing in demand in this area.
Apart from the above, Whitefield is a name that cannot be missed. Affordable pricing, proximity to important workplace catchments and improved retail and social infrastructure have led to considerable residential sales in this area.Whitefield, thus, is not expected to lose any of its sheen in 2013.
Commercial Real Estate
The IT dependency of Bengaluru for sales of commercial space led to weakness in the last few quarters. According to Knight Frank research, the level of absorption observed in H1FY13 fell short of the absorption witnessed during the same period in the previous year by around 40 per cent. While the first half of the first half of FY12 saw the sector taking up 74 per cent of the total office space transacted in the city, the share of the sector declined to 56 per cent in H1FY13. The fact that the absorption by the IT/ITeS sector has waned, signifies the adverse impact felt by the sector owing to global economic conditions.
However, with structural changes in major economies and rapidly changing technological trends, IT companies have been finding new prospective areas of growth in terms of services provided and in terms of geographies catered to. This has led to improved performance of IT firms in Q3FY13 and has improved the overall outlook for the sector.
Knight Frank Research indicative that companies comprising the category ‘Other Service Sectors’ have taken office space absorption from seven per cent in H1FY12 to 25 per cent in H1FY13. These primarily include internet retailing companies like Amazon, Ebay, Flipkart and Snap Deal, as well as telecom sector, notable occupiers being British Telecom, Mars Telecom and Huwaei.
Geographically, demand has been robust in peripheral locations like Electronic City, Whitefield and Outer Ring Road. New office supply, proximity to employee pockets, enhanced connectivity and availability of SEZ and non-SEZ office space will continue to build up corporate presence in these areas in 2013.
Although the overall delivery of projects has been cautious, areas like Whitefield and Outer Ring Road will continue to be preferred office destinations due to Grade A space availability and competitive pricing, which hold the key to demand drivers in such an economic environment.
Retail Real Estate
Real estate in Bengaluru has been picking up over the years as the city has witnessed a significant change in its demographic profile, cutting across different income groups and cultural backgrounds. Recent trends in the retail space include lower absorption and higher vacancy. Rents have remained constant over the last couple of years as there has been a considerable supply of malls in the pipeline. This has offered retailers options and developers a cap to rentals. Although there has been a slowdown witnessed, certain areas will see a boost in activity.
According to Karun Varma, Managing Director – Bengaluru & Kochi, Jones Lang LaSalle India, “In 2013, North and East Bengaluru are definitely the areas to watch for retailers, mall developers and retail property investors. The rapidly developing infrastructure and expanding residential catchments in these locations are harbingers of vastly increased retail activity over the mid-to-long term.”
Overall, although the real estate market in Bengaluru witnessed a mild hiccup due to macro factors, an improvement in these is likely to bounce the market back in 2013.
Delhi-NCR has led India’s real estate market in terms of absorptions and launches during the last three years. The growth seen in peripheral areas of mainland Delhi have been responsible for this positioning as a thriving real estate market. A large part of the development of Delhi-NCR has been a result of the transformation it has been witnessing over the years. Infrastructure development has been rapidly helping new pockets of Delhi-NCR emerge and sell.
Residential Real Estate
The development of Dwarka Expressway has led to a proliferation of projects in the area. Infrastructure advantages, location benefits, price sustainability and appreciation trends of the recent past have and will continue to maintain investor interest and confidence in the region.
Similarly, the Noida Expressway will continue to add to its proposition and appeal as a residential hub. The Noida Expressway region offers better infrastructure than other parts of Delhi- NCR, easy accessibility and availability of affordable options. This willcontinue to propel real estate demand in 2013 as well.
What adds to Noida’s residential growth is the symbiotic relationship it has with commercial development. Office space has been attractive in this region due to lower rentals as compared to Gurgaon and Delhi. Furthermore, the proposed metro rail connecting Noida and Greater Noida will enhance the connectivity of the sectors on the Expressway and Greater Noida, further boosting growth.
Commercial Real Estate
Although residential property continues to bloom in the above areas, the overall commercial development seems hampered as compared to the previous year. According to Knight Frank Research, approximately 1.35 million sq. ft. was transacted in Q3FY13, thus showing a 39 per cent fall compared to the same quarter last year. Even though this seems drastic, it’s not alarming as Q3FY12 saw an exceptional 2.2 million sq. ft. of absorption (as compared to the average of around 1.5 million sq. ft.).
The report further states that during the first three quarters of FY13, around 4.7 million sq. ft. of office space absorption was observed in the NCR market. Even if the total absorption reaches the higher end of Knight Frank’s estimated 5.7- .3 million sq. ft. in FY13, it would fall short of FY12’s level by 11 per cent. Considering the fact that office space transactions are directly correlated to economic conditions, the slump seems justifiable. Moreover, figures seem commendable considering the kind of downturn we have been witnessing globally.
Most of Delhi-NCR’s commercial activity takes place in Gurgaon and Noida. According to Knight Frank Research, in Q3FY13, about 94 per cent of the total office space transacted in the NCR was taken up in the above areas. Half of this space is taken up by IT companies, which are currently concentrated in DLF Cyber City in Gurgaon. The development, cost of properties and availability of housing at regions like Sohna Road, Golf Course Extension Road and Noida and Greater Noida have been increasing the marketability of office space, thus keeping demand sustained.
Retail Real Estate
On the retail front, no significant additions are likely to hit the markets in 2013. While retail continues to face troubles of high vacancy, malls like DLF Emporia, Promenade and Ambience are likely to continue their leadership position. There has been a huge difference in the performance of the above mall and the rest of the retail sector in the region. “Most of the malls in Noida, East and North Delhi and to some extent West Delhi will continue to languish under high vacancy, though the vacancy levels may reduce from current levels due to the lack of new supply”, said Santhosh Kumar, CEO – Operations, Jones Lang LaSalle India.
Thus, apart from the performance of a select few, the overall market looks bleak. Overall vacancy rates hover around 25 per cent and absorption volumes saw a 69 per cent drop in Q2FY13, according to Jones Lang LaSalle India research. Going ahead, a foreseeable control in supply is likely to east the downward pressure on rents and the market is expected to stabilise at existing levels to some extent.
Overall, the situation in NCR is quite clear. Demand has been sustained over the last few years due to infrastructure development. Supply has been healthy and vacancy levels range from 20-25 per cent across micro-markets. Although commercial real estate activity has been lower than last year, rationalisation of new supply coupled with stable demand will lead to stabilisation of the real estate market in Delhi-NCR. The longterm prospects look brilliant considering new projects and the connectivity that they offer.