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| Builders see large room for growth in office space |
| Raghavendra Kamath / Mumbai Sep 28, 2009, 00:10 IST |
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Market for this predicted to grow at a compounded 19% annually for next four years.
The glittering towers in the country’s commercial capital may still be rising into empty space, but that hasn’t stopped Rashesh Kanakiya’s ambitions from soaring.
The chairman of Kanakiya Spaces has just launched a commercial project called — rather oddly, some would say — Boomerang, a 1.2 million sq ft complex at Andheri, a Mumbai suburb. Kanakiya says it’s the country’s largest single-project floor space on offer and a substantial part of that will be earmarked for offices.
The oversupply in the office space doesn’t worry him. “Though there is oversupply in the IT space, demand for office space hasn’t stopped. With international markets picking up, we expect demand to pick up from early next year. We have got an excellent response for our Boomerang project this week,’’ Kanakiya says.
Kanakiya has put his money where his mouth is. His company has also just completed 215 Atrium at Andheri that offers office space of 300,000 sq ft, apart from a 300-room four-star hotel (Courtyard Marriott). The space has been sold out.
Kanakiya is certainly not alone in expecting things to improve. According to a Cushman & Wakefield report, though the office market is expected to dip in demand this year with an expected absorption of 27 million sq ft, the period from 2010 onwards will see the markets experience a healthier demand, with a compounded annual growth of 19 per cent from 2009-2013.
The commercial office market in India is likely to head towards a more balanced demand and supply situation in the next few years. The highest demand in the next five years is expected to be in Bangalore at 34 million sq ft, followed by Chennai at 27 million sq ft. Mumbai comes just after that. The growing corporate confidence is expected to turn things around in the office space market, the report says.
According to the Global Office Real Estate review (mid-year 2009) by Colliers International, Mumbai remains the 15th largest office construction site in the world and the city is currently seeing as much as nine million sq ft of office space coming up. This is a huge jump compared to June 2008 (just before the global recession started) when barely 3.8 million sq ft was under construction.
According to real estate research firm Liases Foras, the Mumbai Metropolitan Region (MMR) has nearly 60 million sq ft of unsold office space, but developers are now planning to launch 120 million sq ft of new office space by 2016, in anticipation of a much better tomorrow.
The growing corporate confidence has prompted many developers to put the oversupply concerns behind them and either launch new projects or put the unfinished ones on the fast track, with aggressive marketing efforts.
The list is getting longer by the day and includes Indiabulls Real Estate, which is ready with its 1.5 million sq ft Indiabulls Finance Centre at Lower Parel, Ackruti City with its office complex at Bandra Kurla Complex, Phoenix Mills, which will develop 1.7 million sq ft of office space in its Phoenix Market City project in Kurla, ACME and the Ajmera group, which have launched their projects recently.
Raja Kaushal, executive director and chief operating officer of BNP Paribas Real Estate India, says there is a latent demand for office space from most sectors. “There are at least five to big companies which are looking for properties in excess of 50,000 sq ft,” Kaushal adds.
That’s a sharp turnaround from the middle of last year, when most companies and financial institutions deferred their expansion plans due to the uncertain demand scenario and in the hope that they would get properties at cheaper prices later. The result: Office rents in the city’s main business hubs, Nariman Point, Bandra Kurla Complex and Lower Parel, have gone down by 50-60 per cent in the past one year.
However, there is a large section of consultants who find the spate of new office space launches a bit difficult to digest. Some developers are marketing aggressively (two-page expensive advertisements in Mumbai dailies have become a common affair now) so that buyers come back.
“Developers have been trying to sell these properties for quite some time. It is very difficult to get buyers, so developers are advertising heavily to woo buyers. And in some cases, they do have any option other than launching office complexes as per zoning laws,’’ says Pankaj Kapoor, chief executive of Liases Foras.
According to Kapoor, a number of developers are also withdrawing their projects due to poor response. Mumbai witnessed 1 million sq ft of cancellation from buyers in the December quarter of this year and a mere 500,000 sq ft of leasing and buying in the June quarter, which is very insignificant, Kapoor says.
Kapoor, however, seems to be in a minority. A real estate developer who didn’t want to be identified says he isn’t a fool to have put his money in something without proper research. “Consultants may be wise people, but we are actually investing and know better,” he says.
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