Investment drive powers big gains for India office space

MUMBAI // India’s office real estate market is set to have its best year since the global financial crisis as the country focuses on attracting more foreign investment and improving the ease of doing business.

The property consultancy Knight Frank India said transaction volumes in the country’s office market rose by 12 per cent in the six biggest markets, led by Mumbai and Hyderabad, in the first half of this year compared with a year earlier.

“I think the office market is poised to have its best year since the global financial crisis,” said Shishir Baijal, the chairman and managing director of Knight Frank India.

Office vacancy levels in India have dropped to an eight-year low, according to Knight Frank’s data. Rental values in the six cities have gone up by 8 per cent in the first half of this year compared with the same period last year.

“The office market continues to grow from strength-to-strength and we believe that the office market is really doing great in all the major cities,” said Samantak Das, the chief economist and national director at Knight Frank India.

New completions of offices in Mumbai rose by 115 per cent year-on-year in the first half, while transactions increased by 51 per cent during the same period in the city, figures from Knight Frank showed.

A long-term development plan for the city is very focused on office space, Mr Das said.

“This, coupled with initiatives by the government in terms of the ease of doing business, attracting foreign capital in crucial sectors and enhanced transparency and governance standards, will augur well for the office sector,” he said.

Two weeks ago, India relaxed rules to allow more foreign direct investment into sectors including aviation and defence.

But there has been a “substantial fall” in transactions in the office market from e-commerce companies, Mr Das said. E-commerce companies in India have been struggling to raise funding following last year’s boom.

“In terms of e-commerce transactions, it has gone down by 78 per cent year-on-year,” Mr Das said. “In the first half of 2015, 4.2 million square feet was transacted only by e-commerce [companies] in the top six cities. It’s not even a million in these first six months – it’s 0.9 million square feet.”

Property brokers JLL India recently said that Kochi, which is not included in Knight Frank’s report, was set to be India’s next “real estate hotspot”.

This is largely because of infrastructure development taking place in Kochi, including a metro rail and new international airport terminal.

Kochi, which was struggling to recover from oversupply, will see a massive revival because of creation of demand from these initiatives, said A Shankar, the national director and head of operations for strategic consulting at JLL India.

“Sustainable growth in real estate prices is now assured in the city and this has incited new interests from numerous real estate developers from all over India who are keen to launch residential, commercial and hospitality projects there,” he said.

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