Recession heat now on retail, commercial segments
The Economic Times, March 22, 2009, page 6
NEARLY 90 MILLION SQFT GRADE-A COMMERCIAL SPACE IS BLOCKED ACROSS TOP SEVEN CITIES
Raja Awasthi NEW DELHI
THE meltdown in the residential segment of real estate is known but the situation is no better in the retail and commercial space as well. Many projects across the country have been badly hit and industry analysts feel that there is a huge over supply of retail and commercial space.
In fact, there's nearly 90 million sq ft of grade A commercial space that is blocked (lying unconstructed) across the top seven cities and more than 25 million sq ft of retail space that is similarly blocked. In the star category hotel segment, 3,000 rooms were expected to be opened for the market in the first six months of 2009, but only 1,000 of these will actually come up.
Says Sanjay Dutt, CEO, Jones Lang LaSalle Meghraj:" The reasons for so much property lying unconstructed is a drop in overall demand, a severe liquidity crunch, generalised uncertainty in the market and the non-viability of many projects, deriving from the fact that some developers bought land at high prices and now are unable to sell at cheaper prices and are now stuck. In the hotel segment, 3,000 rooms were expected to be opened for the market - however only about 1,000 of these will actually materialize. Residential projects, though not actually stalled, are in goslow mode as developers are re-working their original plans to make these projects more affordable."
There are at least 15 million sq ft of commercial real estate blocked across Mumbai and Thane district. While in NCR region more than 12 million sq ft of space has been blocked and one million sq ft each in Chennai and Kolkata markets. There were about 0.5 million housing units that came up in Q4 of 2008 in the same period in 2007 0.8 million housing units came up. Now many projects will be shelved or will face delayed completion. The possibility of projects being shelved is the lowest in the residential asset class as compared to commercial and retail space. In many cases the residential projects might undergo some construction changes in terms of configuration, pricing and size.
Many in the industry believe that there has been an over supply of retail and commercial space. This has resulted in many developers, who till sometime back were not ready to even negotiate prices, now offering discounts and freebies to attract tenants. Majority of the developers across the country have lowered the common area maintenance charges that include facilities like air-conditioning, toilets and general space upkeep. In fact, this itself constitutes almost half of the rentals paid.
Says Kishore Biyani, CEO of Future Group:" It is just a mis-match of demand and supply in the real estate business. We feel that now is the time where the developers should rework the entire gambit of the business. Till such time the retail market does not pick up it would be very difficult to absorb such kind of space. In the near future the market has to stabilise as far as the rentals are concerned. Productivity is a key factor for any retailer to operate efficiently in a mall, in case of a leased deal."
However, in certain micro-markets many retail spaces saw conversion into office space for quick revenue returns due to continued and increasing demand for office space in certain micro markets. This particular trend is expected to continue in the coming few quarters too.
The Economic Times, March 22, 2009, page 6
NEARLY 90 MILLION SQFT GRADE-A COMMERCIAL SPACE IS BLOCKED ACROSS TOP SEVEN CITIES
Raja Awasthi NEW DELHI
THE meltdown in the residential segment of real estate is known but the situation is no better in the retail and commercial space as well. Many projects across the country have been badly hit and industry analysts feel that there is a huge over supply of retail and commercial space.
In fact, there's nearly 90 million sq ft of grade A commercial space that is blocked (lying unconstructed) across the top seven cities and more than 25 million sq ft of retail space that is similarly blocked. In the star category hotel segment, 3,000 rooms were expected to be opened for the market in the first six months of 2009, but only 1,000 of these will actually come up.
Says Sanjay Dutt, CEO, Jones Lang LaSalle Meghraj:" The reasons for so much property lying unconstructed is a drop in overall demand, a severe liquidity crunch, generalised uncertainty in the market and the non-viability of many projects, deriving from the fact that some developers bought land at high prices and now are unable to sell at cheaper prices and are now stuck. In the hotel segment, 3,000 rooms were expected to be opened for the market - however only about 1,000 of these will actually materialize. Residential projects, though not actually stalled, are in goslow mode as developers are re-working their original plans to make these projects more affordable."
There are at least 15 million sq ft of commercial real estate blocked across Mumbai and Thane district. While in NCR region more than 12 million sq ft of space has been blocked and one million sq ft each in Chennai and Kolkata markets. There were about 0.5 million housing units that came up in Q4 of 2008 in the same period in 2007 0.8 million housing units came up. Now many projects will be shelved or will face delayed completion. The possibility of projects being shelved is the lowest in the residential asset class as compared to commercial and retail space. In many cases the residential projects might undergo some construction changes in terms of configuration, pricing and size.
Many in the industry believe that there has been an over supply of retail and commercial space. This has resulted in many developers, who till sometime back were not ready to even negotiate prices, now offering discounts and freebies to attract tenants. Majority of the developers across the country have lowered the common area maintenance charges that include facilities like air-conditioning, toilets and general space upkeep. In fact, this itself constitutes almost half of the rentals paid.
Says Kishore Biyani, CEO of Future Group:" It is just a mis-match of demand and supply in the real estate business. We feel that now is the time where the developers should rework the entire gambit of the business. Till such time the retail market does not pick up it would be very difficult to absorb such kind of space. In the near future the market has to stabilise as far as the rentals are concerned. Productivity is a key factor for any retailer to operate efficiently in a mall, in case of a leased deal."
However, in certain micro-markets many retail spaces saw conversion into office space for quick revenue returns due to continued and increasing demand for office space in certain micro markets. This particular trend is expected to continue in the coming few quarters too.
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