Commercial real estate space is witnessing a reduction in vacancy levels

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Published: March 21, 2019 1:29:01 AM

The commercial real estate space is witnessing a reduction in vacancy levels, rental appreciation and consolidation, with just eight to nine large developers dominating the market, Care ratings agency has said in its report.

Commercial realty sees reduction in vacancy levels, says Care reportCommercial realty sees reduction in vacancy levels, says Care report

The commercial real estate space is witnessing a reduction in vacancy levels, rental appreciation and consolidation, with just eight to nine large developers dominating the market, Care ratings agency has said in its report. This observation comes at a time when the residential real estate space has been witnessing a slowdown since calendar year 2014. Also, Real Estate Investment Trust (REIT)’s entry into the commercial space is expected to trigger a healthy inflow of funds along with institutional money from foreign investors.

The commercial segment will drive the maximum growth as the market will continue to see low vacancy levels. The micro-market will see limited supply across Tier-1 cities in India. The net absorption rate increased to 27 million sqft in 2018 as against 24 million sqft in 2017. Bengaluru and Hyderabad remained the highest demand driver and Central Business District (CBD), Gurgaon, in the National Capital Region also saw strong demand for office spaces among micro-markets.

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Unlike the residential market where the entry barriers are minimal, the office and mall retail market is a capital-intensive one. Thus, the real estate companies require a strong balance sheet with good land banks as many office spaces are being developed on office campuses with huge plot layout.

The residential sector is also recovering with support of government policies for the affordable housing segment. This section is providing the much needed push to sales. The Real Estate Regulatory Authority (RERA) rules have also helped in increasing homebuyers’ confidence with tightening of regulations as the act aims to implement unified laws, fair practices and make the sector more accountable.

The prices of residential properties are expected to remain stable with a minor correction because of new launches at lower prices and piled-up inventories. With the tightening of liquidity and slow credit growth, many small developers are leaving the market or joining with large players.
The stringent regulations under RERA and the strict implementation of the Goods and Services Tax (GST) will weed out non-serious players in the market, limiting the competition only to serious and reputed small players along with the major developers.

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