Commercial property market faces slowdown on the back of tight liquidity and uncertain conditions
After a sharp growth for nearly two years, the tide has turned against the commercial property market in the country. It has been facing a slowdown in the last quarter of 2011 with the sentiment being hit by tight liquidity and uncertain demand conditions.
According to a survey conducted by RICS, the market sentiment currently seems negative – “it points more towards a slowdown in the commercial property segment, rather than anything more material, especially as the market is now levelling off after having risen substantially over the past two years.''
In its survey, RICS said expectations for both investment and demand have been downgraded. It further said that investor demand fell for the third consecutive quarter during October-December 2011. In addition, expectations for future transactions declined along with fall in investor appetite, leading to capital value expectations remaining negative. Globally, too, expectations in both the investment and occupier markets have been downgraded in an increasing number of countries.
RICS said that the sentiment in the occupier market has turned a little more negative, after significant rise in rents through 2010 and the first half of 2011. However, falling tenant demand and rising supply of space leads to a further deterioration in the rental outlook. “During 2011, we witnessed a continuing slowdown in supply of prime office space coupled with a decline in office space take up. This sentiment was indicative of the larger scenario of uncertainty within the corporate sector both in India and in the global market which impacted demand,” Anshuman Magazine, chairman at RICS South Asia Board, said.
Mr. Magazine said the continuing volatility in the global and Indian financial markets, coupled with rising inflation and interest rates, has led corporates and developers to be cautious in their expansion plans. “The tight liquidity situation, high interest costs and uncertain demand were deterrents for the developers to construct. It would be safe to say that this sentiment would remain, till the global and the Indian economic situation stabilizes.''
According to Sanjay Dutt, CEO (Business), Jones Lang LaSalle, India, the occupiers are paused, the developers with the exception of few are starved of capital and wrapped in expensive debt and the investors are cautious as always when really they should be out for ‘the loot'. “India should not lose its attractiveness for global investors including highest remittance generating NRIs. To make India more accessible to foreign investors, each of the stakeholders has to provide transparent, implementable, protectable and profitable investment environment with certainty of return to international investors.”
The quarterly survey was conducted among 900 real estate firms to gauge the developing trends in the commercial property investment and occupier market.
Keywords: property market, liquidity, commercial property, rents
The need of the hour is that the government pulls up its socks and introduces an ubiquitous and candid law which would allow the tenants of rented properties more flexibility over the terms and conditions of such leased property. This would enable them to tweak and introduce some clauses in the agreement which would help derisk the return on their investment and as a result would urge them to rent such properties willingly.
The above would also introduce a sense of ownership among the tenants; i.e. being responsible for the fiscal implications of renting such properties. Although this model is bound to work for business entities having good employee strength and discrete departments since for them managing the terms & conditions of the leased property would just be another wing to manage. However,it remains to be seen how handy the above model is for the small and medium enterprises.
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