Consistent hiring activity across all major corporate has led to positive net employment rate and hence, demand for office space is likely to stay positive in the next 2-3 years.
Since the last couple of years, the Indian real estate segment has seen a steady growth, and the commercial sector in particular has been on an optimistic growth trajectory. Malls cropping up across the country and high-rise plush offices stand as evidence to the growing commercial sector across cities and towns in India. The government’s ‘Make in India’ initiative has also attracted MNCs to start operations in the Indian sub-continent, directly leading to growth of commercial construction in India. A good example of this will be Apple deciding to manufacture their popular iPhones in India.
When it comes to offices spaces, large IT parks and commercial complexes dominate most Tier 1 and Tier 2 cities like Mumbai, Delhi, Bangalore, Pune, and Hyderabad etc. as opposed to standalone office buildings. Take Pune’s example for instance, Kharadi which was earlier considered to be on the outskirts of Pune, now houses one of the biggest IT parks of Pune, the EON IT Park. The area is rapidly developing with a sharp rise in the construction of commercial spaces in the form of IT parks and schools.
In terms of how the commercial market is performing, it is interesting to know that office market leasing in top seven cities crossed 40 mn sq ft mark for the first time in 2016. Cities of NCR, Mumbai Metropolitan Region (MMR) and Pune contributed approximately 40 percent to the office leasing last year. It is estimated that similar amount of leasing can be expected in 2017 with parallel contribution from NCR, MMR and Pune.
Unlike residential properties, commercial projects are bought or leased closer to the project's completion date and there is growth in pre-commitments from occupiers at early stage of project, this clearly indicates strong business uptrend.
Among the key markets, Pune has seen the highest pre-commitment levels among Indian office markets. At the end of second quarter, Pune's pre-commitment activity stood at 48 percent, which is almost half of the total supply expected during 2017.
Additionally, reports suggest that Pune market witnessed office space leasing of nearly 4 mn sq ft in 2016, the leasing volumes in 2017 are likely to be up by 6-8 percent. According to credible industry reports, it has always been observed that among top seven metros, Pune has reported lowest vacancy levels of 9.8 percent in 2016; vacancy numbers are likely to shrink further by the end of 2017. Pune market has close to 11 mn sq ft of office space under construction over the next four years. Nearly 4 mn sq ft of annual demand can bring demand to supersede supply and hence, we see this as an opportunity for real estate players to launch new commercial projects.
Consistent hiring activity seen at entry level across all major corporate has led to positive net employment rate and hence, demand for office space is likely to stay positive in the next 2-3 years.
The implementation of GST and RERA is also expected to boost the growth of real estate industry leading to more and more investment in this sector. Another advantage is the technological advancement that the real estate industry is currently witnessing. This encourages the builder to undertake and deliver multiple projects without much delay thus, adding to the overall growth of the sector. The commercial sector is supposed to grow many fold in the near future and now is a good time to invest in this sector.