CURRENT ECONOMY
India’s gross domestic product (GDP) has taken a tumble from
9% growth in the heydays, before the global financial crisis hit
almost all the economies of the world in 2008. The decline in
growth since then has been significant as the fiscal year 2013-14
is expected to end at a growth of only 4.5%.
Amongst the three broad components of India’s GDP —
manufacturing, services and agriculture — services has not only
driven the growth of national GDP, but has also consolidated
itself as the highest contributor to it. The fiscal and current
account deficit positions are not looking encouraging. Due to
these high deficits, there is a clear danger of the downgrading
of the sovereign ratings of India, which will significantly impact
inward flow of foreign direct investments.
To further complicate matters, the Fed’s decision to scale back
on the quantitative easing has meant there are fewer dollars
in the Indian market, leading to a sharp drop in Indian Rupee
valuation. The government and the Reserve Bank of India (RBI)
stepped in with measures to control the devaluation of the Indian
Rupee, resulting in the steadying of the exchange rate.
COMMERCIAL REAL ESTATE IN INDIA
Demand in the Indian commercial real estate market has been
between 28-32m sq ft per year over the last three to four
years and this trend is likely to continue throughout 2014.
Approximately 40-45m sq ft of office space becomes available
for fit-outs every year. Hence, India is an over-supplied market.
The vacancy rates have held steady at around 20%, and were as
high as 35% around six years ago. This is a clear indication of a
mature market, where developers have re-aligned their supply to
meet the demand. Given the tepid demand conditions and supply
scheduled to hit the market, vacancies are expected to rise up
to 25%, unless there is a turnaround in the economy, which will
translate to higher demand for office space.
Vacancy rates however, may not be the best measure to forecast
rentals in India. The reason for this is that each micro-market
in India behaves in a very individualistic manner. For example,
Mumbai has five micro-markets and each one is different from
the other. In one micro-market, supply may be less than demand
and we may observe the rentals appreciating, whereas in others,
supply is more than demand and occupiers can command the
rentals that they want.
Around half of the office demand comes from the IT sector, which
is largely concentrated in Bengaluru. This city in turn contributes
a third of the total office space demand in India. Mumbai has
traditionally been a hub for banking, financial services and
insurance occupiers, and Delhi has had a mix of IT, banking,
financial services, insurance and telecommunications occupiers.
India
Past, present and future
8 DTZ | In Situ
