Pune Witnesses Return of Commercial Real Estate

News Posted - 2010-02-03

A recent research conducted by consulting firms in the realty sector have shown that the return of the IT sector and IT-enabled services and an overall positive perception about economic recovery has had a benign impact on the city commercial real estate sector, including the retail space.

The survey adds that that in spite of the lift in demand for office and other c ommercial spaces, the lease rentals have remained stable, helping occupiers plan their acquisition better. According to Jones Lang Le Salle Meghraj, leasing activity in the entire Asia-Pacific has gained momentum since the last quarter, as larger emerging markets such as India, China and Brazil are expected to recover from the downturn faster than the rest of the world.

The comeback is, predictably, led by India’s IT sector, with many leading firms such as TCS wanting to hire people in large numbers. Talking to TOI, Mohammed Aslam, head of Jones Lang Le Salle Meghraj in Pune, said, IT/ITeS sector has been a major occupier of office space in Pune.

Over 80 per cent of office space absorption has been by IT, BPO and other knowledge-driven industries. About 10 million square foot of commercial office space supply are under various stages of conception and construction, and are likely to be delivered over the next two years.

According to Cushman & Wakefield’s Pune Market Report for the last quarter 2009, the city is witnessing a marginal rise in absorption of commercial office space. The slower absorption in the earlier quarters has however resulted in increased availability and pressure on lease rentals, the report said.

“With renewed interest from prospective tenants, rental values are expected to stabilise across most micro markets in the short-term,” the report said, adding that rentals will remain weak in the central business districts due to reduced demand and high vacancy levels.

Satish Magar, president of Confederation of Real Estate Developers Associations of India Credai, Pune, said, “As IT and ITeS players have regained confidence and hit the hiring trail again, the demand for office space has gone up. We, however, don’t expect this to mean that the rentals will rise. There is enough supply and choice available across the city and peripheral locations.”

Developers have learnt their lessons from last year downturn and are bringing in additional stock very cautiously, Magar said, indicating that the lease rentals won reduce sharply due to oversupply either. The cascading effect of resumption of activity for office spaces has boosted the mood in the retail space as well.

In Pune, retail transactions have picked up noticeably following a marked upsurge in shopper sentiments and a generalised correction in retail real estate rentals, Aslam said. He added that properties are more viable for retailers, and the current scenario is now considered far more amenable to their bottom-lines than it was before.

“Moreover, an increasing number of retail landlords in Pune malls and high street locations have opened up to the minimum guarantee and revenue sharing models. The general stance now is that if a retailer is making money, landlords are willing to offer reductions on rentals if the retailer is willing to sharing his topline.”

Though value retail rules the roost in a budget-conscious city like Pune, there is a surprisingly fast revival in terms of premium brands, and transactions for retail spaces in advantageous locations in malls and high streets are picking up, he added.

Financial rating firm Fitch Ratings has also said that it expects greater stability in the ratings of Indian retailers in 2010, given improving economic and consumer sentiment, a scale-back in expansion, and improving margins. Fitch noted that sales across all formats have started to improve, stating that “Value retailers” have led the recovery trend, followed by department stores.

Fitch notes that the recovery appears sharper for department stores, although this is partly because department stores faced a sharper decline during the downturn. Fitch expects that both “value” and “lifestyle” retailers will continue to report better performance in 2010.

Source : ATP 01/02/2010