2012 was a sluggish year in terms of economic growth, largely because of high interest rates and poor industrial production. Indeed, the index of industrial production rose by just 0.4% in April-August 2012, as compared to 5.6% in the same period of 2011. Manufacturing activity, which contributes significantly to India’s GDP, also took a big hit in 2012. Inflation remained high, impacting sentiments and investor interest across businesses – including real estate.
RESIDENTIAL REAL ESTATE IN 2012
As has been the case in the past, the larger cities of Mumbai and NCR-Delhi recorded healthy absorption of residential units during 2012, with a 60% contribution to the overall absorption. Chennai and Pune were among the other two cities that increased their share of absorption during 2012 to 26% from the 23% recorded a year ago.
At a country level, a total of 160,622 residential units were launched in 2012, as compared to 154,701 units for the corresponding period of 2011. From the pricing perspective, the average residential capital values in 2012 appreciated in the range of 1-3% y-o-y.
Among the top 7 cities of India, the capital value growth in Pune and NCR-Delhi was the highest, while Hyderabad and Bangalore saw a slower rate of capital value growth. There is still no price correction on the cards, but the quantum of appreciation definitely reduced significantly in all the top seven cities of India in 2012.
Although demand showed signs of improvement with the approach of the festive season, developers are still struggling with rising inventories and have attempted to sell off their existing stock via out-of-the-box marketing techniques and pricing mechanisms to attract end users and investors.
- Infrastructure deficit continues to be a key restraint for the growth of residential markets across India.
- Overpricing has been an issue in Pune, Hyderabad and Kolkata, resulting in a relatively smaller share of absorption from these cities during 2012.
- From a supply perspective, Hyderabad and Kolkata saw a decline in the number of residential units launched, accounting for less than 2% respectively of the total in 2012YTD.
COMMERCIAL REAL ESTATE IN 2012
The secondary business districts (SBDs) of Mumbai, Bangalore and Pune, followed by central business districts (CBDs) of Bangalore and Gachibowli in Hyderabad, began emerging as landlord markets. This is primarily because these areas have a lower-than-average vacancy levels from a national perspective, and also because of the relatively higher rental value change in these submarkets as compared to the corresponding trough levels in the past.
The CBDs of NCR-Delhi, Mumbai, Pune and Hyderabad remained neutral markets because of negligible vacancies (5-10%) as compared to the national average of 19%. Also, these locations saw persistent market stagnation because of negligible rental growth and lower vibrancy.
The suburban business districts of NCR-Delhi, Mumbai, Chennai and Kolkata, which have higher-than-average vacancies, remained occupier friendly markets. Higher vacancy expectations continues to exert short-term pressure on their rental value growth.
- In 2012, the cautious occupier sentiment that resulted from the on-going global uncertainties was one of the key reasons behind slow commercial property leasing activity in the major cities of India.
- With domestic office occupiers going slow on expansion, MNC occupiers have been delaying deal closures as they have to go through multiple levels of approvals to execute expansion plans amid sustained cost pressures.
- Among the top seven cities, Mumbai and NCR-Delhi recorded a y-o-y absorption drop of around 47% and 26% respectively during 2012.
2012 was defined by a notable decline in absorption of office space across most of the cities in India from the 2011 levels. However, the larger cities of Mumbai, NCR-Delhi, Bangalore and Chennai contributed to a healthy 72.5% of the country’s net absorption of commercial real estate. In fact, the share of pre-commitments to absorption in 2012 was more than recorded during the previous year.
RETAIL REAL ESTATE IN 2012
- With an operational stock of close to 65 million sq ft during 2012 YTD, the retail mall supply across the top seven cities of India slowed considerably as compared to the supply recorded in 2011.
- With a drop in supply of over 65%, new completions in 2012YTD were at a new low when we consider the trend of the past five years (since 2007). Barring Hyderabad, all cities recorded completions during 2012, albeit at a slower pace than witnessed in 2011.
- Mumbai, NCR-Delhi, Bangalore and Chennai together absorbed 81% of the total retail space in 2012. This is significant, considering their consolidated contribution of 70% in total retail space absorption in 2011.
Retailers in cities like NCR-Delhi, Mumbai and Bangalore continued to actively lease space in superior quality malls due to the limited availability of new space and the low vacancy rates in existing prime malls. The total net absorption of retail space across India projected for 2012 was 4.4 million square feet, led by NCR-Delhi and Bangalore (which together absorbed 2.6 million square feet). They were followed by Mumbai, Pune and Kolkata, where absorption was around 0.8, 0.5 and 0.4 million square feet respectively.