Rents, capital values for offices projected to grow more rapidly

Demand for office space across the top cities in India has continued to grow for the last seven quarters, said the Royal Institution of Chartered Surveyors (RICS), a standards setting body for the real estate and construction sectors.

“The office sector in India has continued to outperform with both tenant and investor showing strong appetite. However, retail, which is still growing at a slower pace, has lagged behind office space demand for several quarters now,” said RICS in its Q4 2015 India Commercial Property Monitor.

Rents and capital values for prime offices are projected to grow more rapidly over the next 12 months, according to the study.

“Office demand for the last several quarters has been improving and is expected to continue in the same direction this year as well. In fact, the demand for Grade A office space is outstripping supply, with many new Indian startups in the tech space, global MNCs, IT and telecom companies expanding operations in India. This is definitely a good trend, one which we hope to see continue,” said Devina Ghildial, managing director – South Asia at RICS.

“On the policy side, with the union budget announcements expected later this month, we look forward to the government providing further clarity on REIT’s taxation and granting infrastructure status to the realty sector. There is also expectation around the implementation of GST, as this would significantly impact growth in the commercial sector,” she said.

The respondents to the survey said that for India to continue to perform strongly in 2016 in the commercial space segment, granting of infrastructure status to the real estate sector that would lead to easy and cheaper debt to real estate developers helping them in construction and delivery of projects in time will be key.

“In India, delay in delivery of realty projects is the number one challenge faced by developers, which leads to cost escalations which is then passed on in part to end users,” the report said.

“Implementation of GST is also extremely important for the commercial sector to continue to perform. The proposed shift to the GST regime is expected to impart greater transparency through market mechanism and make Indian markets more investor friendly to global investors,” it said.