Residential Real Estate 2014
The slowdown in the Indian economy continued as the Reserve Bank of India revised the real GDP growth rate forecast for 2013-14 downwards to 5.0% from 5.7%. Economic slowdown has had a an impact on the end user sentiments that has impacted the absorption of residential units ultimately leading to a slowdown in the values.
The strong headwinds that the domestic economy has been facing since the last year due to structural issues like high fiscal and current account deficits, and delay in reforms are expected to remain until the general elections next year. As a result, the first half of the year may maintain status quo and improve thereafter in the second half.
The looming scenario of tapering of the US Fed's liquidity infusing Quantitative Easing programme in 2014 could result in investment outflows as was seen earlier this year and dictate the currency fluctuations in India, affecting all policy on tightening of interest rates to protect the rupee in coming months.
In the residential real estate sector, select locations may witness healthy activity and garner good response from developers, investors and end-users alike due to ongoing infrastructure developments such as metro rail and mono rail connectivity, construction of flyovers, inner and outer ring roads, which are at various phases of construction in Bengaluru, Chennai, Mumbai and NCR.
Overall residential markets are expected to witness stable capital values except for those developments that are over leveraged and are not able to attract sales. Such developments and or locations are expected to see some corrections downwards. These are especially expected in locations / developments in Mumbai and NCR where margins of correction are higher.
Overall residential markets are expected to witness stable capital values except for those developments that are over leveraged and are not able to attract sales. Such developments and or locations are expected to see some corrections downwards. These are especially expected in locations / developments in Mumbai and NCR where margins of correction are higher.
Southern cities will see stable rentals with a downward bias in oversupplied and peripheral markets. Some developers may continue to struggle with liquidity issues and be forced to offer some discounts and/or freebies to boost sales. Further, the implementation of various reform measures like the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 and the proposed Real Estate (Regulation and Development) Bill 2013 will see increased participation from all stakeholders like government, developers, real estate service providers, and investors alike. The main watershed for this will be the upcoming 2014 general elections, and the improvements thereafter will largely depend on the ability of the new Government at the Centre in bringing about strong structural reforms for the stability of the economy.
India Retail Outlook 2014
The year 2013 saw mixed trends in the retail sector in India. Even though up to 51% FDI in multi brand retail was approved towards the end of 2012, the first application was received only during at the end of 2013, with the world’s largest multi-brand retailer - Walmart also calling off its joint venture in India.
India Retail Outlook 2014
The year 2013 saw mixed trends in the retail sector in India. Even though up to 51% FDI in multi brand retail was approved towards the end of 2012, the first application was received only during at the end of 2013, with the world’s largest multi-brand retailer - Walmart also calling off its joint venture in India.
However, we also saw the approval of the largest investment decision of nearly US$ 2 billion in retail by Swedish firm IKEA in the second quarter of 2013 following the elaboration of investments norms in single brand retail, whilst others such as Villeroy & Boch AG, H&M, Decathalon, Pavers, Fossil and Promod have also received approvals over the year.
Additionally, many other international brands such as Starbucks, Marks & Spencers, Hamleys, Zara, Massimo Dutti, Tommy Hilfiger, etc increased their presence by opening more stores and outlets across India in both high streets as well as in malls, airports and hotels. Consequently we saw a total supply of around 4.6 million square feet (msf) of mall spaces in the top eight Indian cities of Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad Kolkata, Mumbai and Pune, which is 39% more than last year.
The mall supply has also evolved with developers focussing on offering quality malls, some of which either focus on specific segments such as luxury goods or offer specific themes and attractions; Chennai and Kolkata have each seen the opening of a luxury mall this year and Noida is slated to see The Grand Venice Mall open next year. Malls rentals remained largely stable with only well located, well managed and high footfall attracting malls being able to increase their rentals.
Leasing activity in high streets was also strong, especially in new and emerging micro markets with good catchments. Rentals in high streets showed mixed trends with locations undergoing infrastructural development works witnessing a drop in rentals as footfalls and revenues were adversely affected.
Though there is good demand from retailers for quality spaces and for 2014 there is currently a pipeline of mall supply of 14 msf, not all of it will be completed. Carrying on from this year, developers are expected to remain constrained by liquidity issues, which will adversely impact their timelines. Further, some micro markets may see excessive supply within a short span, causing retailers to be cautious in signing up spaces. Hence, similar to 2013 we anticipate that a large portion of the expected supply for 2014 may get deferred to 2015, for which there are strong expectations of a more vibrant economy and high retail demand.
Though there is good demand from retailers for quality spaces and for 2014 there is currently a pipeline of mall supply of 14 msf, not all of it will be completed. Carrying on from this year, developers are expected to remain constrained by liquidity issues, which will adversely impact their timelines. Further, some micro markets may see excessive supply within a short span, causing retailers to be cautious in signing up spaces. Hence, similar to 2013 we anticipate that a large portion of the expected supply for 2014 may get deferred to 2015, for which there are strong expectations of a more vibrant economy and high retail demand.
Meanwhile, established main street locations of NCR (Connaught Place, DLF Galleria, Rajouri Garden), Bengaluru (MG Road, Kormangala 80 Feet Road and Jayanagar 4th Block) and Mumbai (Colaba, Lokhandwala, Fort and Borivali) will continue to witness healthy retail activity with demand stemming from apparels, F&B and footwear retailers looking to increase their footprints in each of these cities.
The rental values across most main streets and mall locations across top 8 cities in India are expected to remain stable. However, prime main streets in Chennai (Nungambakkam High Road, Pondy Bazar and Usman Road) and an upcoming main street in Kolkata (VIP Road) are anticipated to see appreciation owing to buoyant enquiry levels. Further, cities select mall locations like SG Highway in Ahmedabad and the eastern parts of Pune may witness downward pressure on rentals in wake of higher supply levels existing.
India Office Outlook 2014
Given the current state of India’s economy wherein the GDP growth estimate for FY 2013-14 by the RBI has been lowered to 5.0% from an earlier estimate of 5.7%; the overall occupier sentiment is anticipated to remain cautious during the next year. Therefore, the demand for additional office spaces is expected to remain similar to 2013, which saw absorption levels at just over 23 million square feet (msf). However, there is some optimism that the overall investment and business sentiment will improve post the general elections in the middle of 2014 and we could see some incremental demand, which is expected to become healthy in 2015.
Additionally, the recent depreciation in the Indian rupee is expected to have some positive effects on the IT-ITES sector, which is also expected to pick up momentum with the encouraging progress in the US and EU economies seen recently.
“The next year is crucial in terms of political and economic scenario of as India goes into a decider election that would impact the course of development running up to 2020. The global corporate world is waiting to see the results of the general elections in India as it would clear the route path for future developments in the economic and corporate arena. The Office Market is expected to remain cautious for most of 2014 with net absorption expecting to remain similar as 2013 at an estimated 23 – 25 msf.
Global corporates will remain invested in India with cautious optimism. Rationalisation of real estate portfolio will be the key to driving office space absorption for majority of 2014. The office market will remain largely an occupier market with rental values in major office location remaining stable. Whilst funds are mainly investing in leased office assets, developers are also offering assured returns models to HNI clients for strata sales of vacant or under construction offices to generate liquidity in markets such as NCR and Mumbai.”
Though its share in the total office demand has decreased by 5-10% across cities in 2013, the IT-ITeS sector will continue to be the major demand driver. The next year will continue to witness an increase in relocation and consolidation activities along with pre-commitment of office spaces by occupiers in order to take advantage of the prevalent market conditions.
“The next year is crucial in terms of political and economic scenario of as India goes into a decider election that would impact the course of development running up to 2020. The global corporate world is waiting to see the results of the general elections in India as it would clear the route path for future developments in the economic and corporate arena. The Office Market is expected to remain cautious for most of 2014 with net absorption expecting to remain similar as 2013 at an estimated 23 – 25 msf.
Global corporates will remain invested in India with cautious optimism. Rationalisation of real estate portfolio will be the key to driving office space absorption for majority of 2014. The office market will remain largely an occupier market with rental values in major office location remaining stable. Whilst funds are mainly investing in leased office assets, developers are also offering assured returns models to HNI clients for strata sales of vacant or under construction offices to generate liquidity in markets such as NCR and Mumbai.”
Though its share in the total office demand has decreased by 5-10% across cities in 2013, the IT-ITeS sector will continue to be the major demand driver. The next year will continue to witness an increase in relocation and consolidation activities along with pre-commitment of office spaces by occupiers in order to take advantage of the prevalent market conditions.
Cities like Mumbai, NCR and Bengaluru will continue to see occupiers’ preference for peripheral submarkets owing to availability of large quality space options, better commercial terms and fast developing support infrastructure as well as their proximity to major residential hubs where most of the talent pool resides. Meanwhile, other major cities like Chennai, Ahmedabad, Hyderabad and Pune are expected to continue witness healthy traction in their suburban submarkets.
Although cities like Mumbai, NCR and Bengaluru have 12-16 msf each supply in the pipel ine for 2014 and similarly other major cities like Ahmedabad, Hyderabad, Kolkata and Pune have 5-8 msf anticipated, most developers are anticipated to complete projects guided by the actual demand levels, which may result in deferment of nearly half the projects to subsequent years. However, the total supply is still likely to exceed the total net absorption and we may witness a rise in vacancy levels. Consequently, the developers and landlords are expected to hold on to the rentals until the overall demand improves.
In continuation of the momentum built up this year, we expect to continue to see large investment deals by real estate funds in leased office assets given the competitively priced capital values that are currently prevailing. Also, interest from large domestic companies in acquiring their own offices for self-use is expected to continue.
Although cities like Mumbai, NCR and Bengaluru have 12-16 msf each supply in the pipel ine for 2014 and similarly other major cities like Ahmedabad, Hyderabad, Kolkata and Pune have 5-8 msf anticipated, most developers are anticipated to complete projects guided by the actual demand levels, which may result in deferment of nearly half the projects to subsequent years. However, the total supply is still likely to exceed the total net absorption and we may witness a rise in vacancy levels. Consequently, the developers and landlords are expected to hold on to the rentals until the overall demand improves.
In continuation of the momentum built up this year, we expect to continue to see large investment deals by real estate funds in leased office assets given the competitively priced capital values that are currently prevailing. Also, interest from large domestic companies in acquiring their own offices for self-use is expected to continue.
However, the most exciting prospects for the sector will come in the form of Real Estate Investment Trusts (REITs) that the industry is anticipating will be allowed from the next year, given the Securities and Exchange Board of India (SEBI) recent solicitation of feedback from stakeholders on the proposed rules and regulations.
We expect that REITs will allow developers to list their large office parks and other commercial assets and raise much needed funding for their current and future projects. Also, such a move will bring in more maturity and transparency in the sector which will help it to develop similarly as the more mature global markets.