India Development News & Foreign Investment Opportunities

Commercial Real Estate: Most buoyant

First REIT a fire-draw


First REIT a fire-draw


Kolkata Metro

India’s commercial real estate segment remained the most buoyant, with demand for Grade A office spaces increasing and vacancy levels declining across the top cities.

India’s first REIT listings was a fire-draw for liquidity infusions into office spaces, prompting developers to increase their supply, writes Prashant Thakur, Director & Head – Research, ANAROCK Property Consultants.

Government-friendly policies further eased doing business in India, boosting confidence of global entities.

As per ANAROCK data, Kolkata saw new supply of nearly 2 million sq. ft. in 2018 and considering this in 2019, we can expect at least 10-15% increase in this supply. The absorption of office space in Kolkata stood at approx. 1.1 million sq. ft. in 2018, almost same as that in the preceding year.

However, in 2018, the city had the highest office vacancy levels among the top 7 cities at nearly 31% (the lowest was in Bangalore at 3.4%). Kolkata’s office vacancy levels in 2018 increased by around 11% since 2017, despite Kolkata having the lowest average rentals among the top cities at Rs.50 per sq. ft./month.

In Q1 2019, of the total commercial supply of 11 million sq. ft. across top 7 cities, Kolkata saw merely 0.2 million sq. ft. as against no new supply added the previous year in Q1 2018. As for absorption in office space, data indicates that Kolkata saw leasing of nearly 0.3 million sq. ft. space during Q1 2019 as against 0.2 million sq. ft space leased in Q1 2018, indicating a marginal increase.

Sector-wise, IT-BPM continued to drive demand in the city, followed by a meagre interest from other sectors like consulting, pharma and logistics. Flexible workspaces in Kolkata saw no major leasing activity during the period.

Performing Areas in Kolkata

Various areas in Kolkata’s peripheries have seen considerable residential activity over the last 5-6 years. These include Joka, Maheshtala and Rajarhat including New Town. The major factors driving activity is increasing demand for affordable housing, with these areas having multiple options in the affordable (<Rs.40 lakh budget) category.

Also, various ongoing and proposed infrastructure projects including Metro rail network are boosting the connectivity of these areas, which were earlier considered very remote and disconnected.

In commercial real estate, the major areas focus include Kasba, Salt Lake Sector V and New Town and Rajarhat. Monthly office rentals in these areas range between Rs.75-90 per sq. ft., Rs.40-50 per sq. ft. and Rs.34–38 per sq. ft, respectively.

Residential Real Estate

After a lull over the last few years, the Indian residential real estate segment saw green shoots of revival in the first quarter of 2019 across cities following the triple benefits offered to it by the government by way of GST reduction and sops in the budget.

These sops have not only improved homebuyers’ sentiments but also boosted the confidence of long-term investors.

As per ANAROCK data, the top 7 cities saw new unit launches of around 70,490 units in Q1 2019 compared to 36,970 units in Q1 2018, a yearly rise of 91%. The key cities contributing to this rise included MMR, Pune, Bengaluru and NCR.

However, Kolkata’s new launches recorded a massive drop of 85% during the period with merely 1,000 units being launched in Q1 2019.

Simultaneously, around 78,520 units were sold in Q1 2019 with NCR, MMR, Bengaluru and Pune together accounting for 84% of the sales.

Housing sales in Kolkata saw yearly rise of 18%, from 3,420 units in Q1 2018 to 4,020 units in Q1 2019. Meanwhile, unsold inventory also declined by 9%

The fact that the city saw restricted new supply was good from the perspective that builders were largely concentrating on completing their previously launched projects rather than starting new ones.

Buyers are coming forward in Kolkata, leading to an overall rise in housing sales. That said, while cities like MMR saw their new supply increase significantly by up to 95% over the year, Kolkata saw reduced new supply stock in the same period.

This reduction will serve Kolkata’s market well, as builders will focus squarely on project completion. While the centre-mandated RERA is being enforced in most states, West Bengal has notified its own real estate law under West Bengal Housing Industry Regulatory Authority (WBHIRA). This has added at least some checks and balances on builders.

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