Although there is demand for office space, the availability in key markets such as Delhi-NCR, Mumbai, Bengaluru, Chennai, Hyderabad, Pune, Kolkata, Ahmedabad and Kochi is quite lower, says Ram T Chandnani, Managing Director, Advisory and Transaction Services India, CBRE South Asia.
According to him, demand for quality warehouses is also on the rise, specially from sectors like e-commerce and FMCG.
In an interview to
Last year (Jan-Dec 2016), we saw absorption of 43 million sqfeet of space across nine locations in India.
And this was primarily office space with growth in tech companies, manufacturing, pharma, consulting companies, banking and financial services.
The first quarter of this year saw a healthy 8 million-plus sqft of space being leased. Obviously, there is a supply-demand mismatch in most key markets (not enough ready-to-move-in space).
For example, Gurgaon doesn’t have much ready-to-move-in supply; they’re under construction. Bengaluru too has a lot of under-construction spaces.
Because of this supply-demand situation, we expect absorption to be around the 40 million sqft.
But considering the previous years’ demand, shouldn’t there have been more ready-to-move-in space already?
Post the global financial crisis, most cities were left with over-supply.
Now all that supply had to be leased.
Apart from getting sanctions for available land parcels, developers also moved away from commercial to residential projects during this time.
You are betting big on BFSI and tech firms. But bank branches are shrinking with digitisation, and IT has its own issues.
Even e-commerce players have shrunk. So how can increased demand in office space be possible?
E-commerce was a very small player in office space.
Yes, bank branch premises have shrunk because you do not need that many people sitting in the branch.
Banks have reduced front-offices, but back-offices are increasing. A lot of large multinational banks, instead of out-souring to third-party players, are now in-sourcing too.
In IT, third-party outsourcing has marginally come down; it is a temporary blip.
What about demand in other sectors such as retail and mall space?
In the past, those into retail schemes were selling off and not holding on to the asset.
Larger developers mostly held on to the assets.
The organised or larger players made sure they got the right churn, worked on tenancy and mall management, and continued to manage the assets, enhance value, upgrade or refurbish them.
Long-term players continue to do well.
There will be a combination of neighbourhood centres and larger formats in malls.
And you will also see a lot of foreign capital partnering with local developers.
And warehousing?
We are witnessing a demand for quality (statutory approved) warehousing from e-commerce players, healthcare firms, FMCG and food services firms.
With the roll-out of the GST, do you see any change in businesses?
From a GST perspective, one of the benefits is uniform taxation. With that, the biggest challenge of entry tax across States goes away.
Uniform taxation also means a retailer does not have to worry about double taxation.
Moreover, octroi will be uniform across the country; you could have larger distribution warehouses and a full hub-and-spoke model. In case of retail, import credit will make a big difference. So we will have to wait and watch.
Will RERA (Real Estate (Regulation and Development) Act) affect commercial space leasing?
Very limited (effect); the impact will mostly be on residential projects.