Commercial real estate is the King, at least for now, as office spaces sell / rent real fast

The year 2015 was literally a waterloo for many real estate developers who were making thousands of residential properties. The sales had stagnated and the inquiries had trickled down miserably low.

However the sales and lease transactions of office spaces have jumped multifold in 2015 and 2016 seems to be a continuation of the same.

This positive momentum for office spaces holds true for the entire country and about 38 million square feet of corporate real estate space was sold in India's top seven cities in 2015, the highest till date, as per the report of leading agency.

Apparently the commercial space demand has been led by the IT capital of the country, Bengaluru with around 32% share of the total absorption across leading cities and next in line is the National Capital Region with 23% share. Suburban and peripheral office districts of major cities including Mumbai, Pune, Nashik, Gurgoan, etc. attracted a very healthy demand from actual users including SMEs, FMCGs, corporates, etc. in the last quarter of 2015.

The demand and consumption of office spaces across the country is great indicator of the economic situation of the country and it seems with the Make in India Campaign, the extra efforts put to make life easier for startups is definitely translating into actual business and momentum on the ground. It is therefore no too farfetched to assume that as the commercial market heats up, the residential market would follow suit and 2016 might turn out to be good year for the residential market as well.

Many  IT, ITeS, ecommerce, financial services and healthcare sector companies with deep pockets have been scouting and picking up commercial office spaces across different locations, towns, cities in India. The most important aspect has been that deal sizes for around 90% of these transactions have been lower than 40,000 sq ft on an average. That means the growing segment of startups; SMEs have been in the thick of most of the action.

The positive demand in the commercial and office segment is indicative of an overall improved economic sentiment among domestic and international corporates. This in turn will create more jobs and opportunities for the young work force of India. These people are the very home buyers that the market has so desperately wanted to tap. With renewed confidence, good, good salaries and positive steps from the banks for home loan procurements, the residential real estate market in India should be back in the upswing very shortly.

In terms of numbers, facts and figures, we can see the growth in stock market performance of property and real estate developers who have the options of leasable or saleable commercial / office spaces. Last year when the real estate market was in the doldrums, shares of Godrej Properties and Marathon Nextgen Realty rose 32% and 43%, respectively. In Bangalore the Brigade Group managed to gain a 2% increase even while the other real estate players were witnessing hara-kiri and had their share values drop to almost twenty per cent in some cases.

It is therefore expected that the realty houses that have a healthy mix of residential and commercial properties in their kitty should do well in the coming months and there are many developers who had almost said good bye to office space developments, are now looking to develop the same while there is this positive demand from the market.

The market valuation of real estate development companies that have a healthy ratio of commercial property in theory bag is expected to rise especially in the city of Bengaluru where the startup growth culture and also the exiting strength of the It market ensures that the commercial segment is always busy.

Prestige Estates, Brigade group, DLF, Wadhwa developers, Adani Realty are expected do well as they have some very good commercial inventory in Bangalore, Cyber City, BKC, Ahmedabad, etc.

The noteworthy commercial micro markets recently that have witnessed a surge in activity include; Gurgaon in NCR; Powai, Vikhroli, Kanjurmarg, Thane and Navi Mumbai in the Mumbai Metropolitan Region; the Outer Ring Road in Bangalore; the IT C o r r i d o r i n H yd e r ab a d ; t h e O l d Mahabalipuram Road stretch along Perungudi in Chennai; Viman Nagar, Hinjewadi in Pune; and Salt Lake Sector V in Kolkata.