The commercial real estate market in India has picked up and is taking over residential segment by leaps and bound. Today it serves as a more lucrative investment option with investors gaining from rental income as well as capital appreciation.
Commercial real estate witnessed a turnaround in 2015 after being sluggish for over three years. As per Cushman & Wakefield, the overall absorption is likely to gain momentum in the year 2017. The sector had pre-commitment levels across eight cities at 11.80 msf in 2015, most of which to be absorbed this year itself. It is this supply gap that is encouraging developers to launch new projects in the commercial real estate segment. Groups like House of Hiranandani are looking to add commercial portfolio into their business. They are eying under construction projects to take over.
As per the recent JLL report, major residential markets in the country saw average residential property prices in the city and suburbs appreciate by only 3.3% in 2015 as against an average of 7% in 2014. This sluggish growth has pushed investors towards commercial real estate. Moreover, they are keen on Grade-A properties as these properties yield more than average appreciation of around 12-15% annually. Also, Grade-A commercial properties give 8-10% rental returns on the capital value depending upon interest rates.
Though there are many developers who are today developing Grade-A commercial properties, the segment was primarily pioneered by DLF. With an increasing appetite for such properties, Godrej and Tata entered the space. Talking about global brands, the first entrant in India into the Grade-A commercial properties segment was World Trade Center. The WTC or the World Trade Center started its first establishment in Mumbai and later granted another license to Brigade Group of Bengaluru to develop and manage a one million Sq Ft office tower.
In the last couple of years, investors have become more inclined towards world-class commercial spaces. One of the reasons for this shift is a constant increase in rental incomes. According to data from property consultancy CBRE Asia, rentals in NCR area rose 13% while those in Bengaluru's Whitefield and Electronic City rose 12%. Rentals in Hyderabad's IT corridor and areas such as HITEC City, Madhapur and Gachibowli rose by 14-20% in the last one year. Markets like Chandigarh and Noida have also shown significant growth. With WTC present at both these places, they have already registered their arrival into global commercial real estate market. In Noida, the first phase of WTC is completely leased out; second phase construction is also going on.
Apart from an increased FDI flow into the segment, the market for commercial real estate properties has started attracting HNIs as well. In Bengaluru, Prestige Constructions sold 0.5 million sq ft of commercial space to HNIs who were looking to build annuity portfolio. The year 2017 promises better period for the commercial real estate market and why not, with festive season just started, the growth rate of commercial spaces is expected to rise.
