Despite apprehension over job losses in the IT sector hitting the absorption of office space, Bengaluru-based real estate company, Prestige Estates, said it is confident of clocking in 20% growth by way of lease rentals in FY18. This, even as informal channel checks with brokers revealed that large layoffs in the IT industry, which accounts for 50% of the country’s total office space demand, is expected to drop by an estimated 15% to 20%.
In an interview to FE, chairman and managing director of the group, Irfan Razack expressed his apprehension about achieving last year’s industry-wide absorption of some 40 million sq ft. “There will be a lull after consistent performance during the last few years. However, businesses are cyclical and the headwinds in the IT sector will not dent its fundamental strength, ” Razak said.
Since the company’s lease agreements are tied up, the target could be achieved, said one analyst who did not wish to be named.
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However, sector analysts are not so convinced the government will meet the guidance for residential sales.
Prestige has guided for 10 million sq ft of launches for the next year. The average run rate has been about 10-12 million sq ft of launches except in FY17, when it launched only 2 million sq ft. That, Razak said, has hurt the company’s performance; an estimated erosion of at least `3,000 crore of revenue this year, considering `6,000 per. sq. ft as sale price, he added.
But in the past six months, Bengaluru, which has thus far been considered a resilient market, has shown clear signs of weakness.
During the period, July to December 2016, launches in the city dropped by a drastic 45% on a year-on-year basis and sales slumped by 27%. As much as some of it can be attributed to the demonetization process, now, company’s have to deal with RERA regulations. All in all, the trigger shifts, it hardly gets resolved.
Now, experts said, the job losses in the IT sector is not going to be limited in the office piece alone. “IT hubs like Bengaluru cannot be insulated,” said Shubhranshu Pani, managing director of strategic consulting, JLL India. Typically, home buyers who run the risk of losing their jobs target apartments priced between Rs 4,000 a sq ft and Rs 10,000 sq ft, making this a vulnerable segment now, Pani added. A report published by JM Financial said whether Prestige can achieve its target depends on demand recovery. No launches were announced as demand visibility remained limited during the last quarter. So doubts regarding an intended 40% jump in sales is not unfounded.