The dark night is over

The dark night is over
The Economic Times, ET Realty, November 20, 2009, Page 9

As the dark clouds of market slowdown have lifted, commercial realty segment is finally looking up. The situation is only going to go better now, say experts. Read on to know more...

Vivek Shukla

Even as residential market picks up and end users flock back to book their dream homes in various housing projects, action is slowly gathering pace in commercial realty market too - after a long time, there is a positive movement here.

While it will take at least two years for DLF Corporate Green building in Sector 74 in Gurgaon, near Haldiram, to become fully operational, the construction is giving a huge boost to commercial realty scene. There is a definite buzz in market for this latest offering from the stable of a market leader. This is all the more surprising considering that rentals in good buildings have also seen big slump in Delhi, as well as in NCR towns.

As if this were not enough, there is a glut in available space in most of the buildings in these areas. A lot of office space is up for grabs as many big-ticket companies have shifted from bigger to small offices in the past few months after they were hit hard by economic slow down. A large number of companies resorted to such measures in order to reduce their overheads. The number of companies which were occupying 10,000 sq feet or more space and then shifting to smaller spaces is not small. In the world of realty, any office that is spread in an area of 10,000 sq feet is considered big. Despite all this, DLF Corporate Green has, in a way, became a test case to prove that commercial market is also getting back into its own, slowly.

Sanjay Rai, spokesman of DLF, says while he cannot say with certainty that their new offering would revive activity in commercial property segment, there are three very important factors in realty sector that play a key role in determining demand of any residential as well as commercial buildng: one, right pricing; two: right location, and three: track record of the realty firm in terms of completing their project. If any property has all these three, it is bound to attract the attention of customers, Rai feels.

"I couldn't agree more with these three points," says Devender Gupta, CMD, realty advisory Century 21 India, adding, "I feel the pricing in the case of DLF Commercial Greens is very significant. They have fixed Rs 5,200/sq feet in their new building when the current rates in commercial buildings in same area are hovering between Rs 6,500/sq feet and Rs 7,500/sq feet. You would not get commercial space at Rs 5,200/sq feet in any commercial buildings like Unitech Business Zone, Times Square, ABW Tower and other such buildings. These buildings are either on Iffco chowk or close to it."

Zafar Iqbal, formerly of Indian Administrative Services and an expert on land related matters, says as economy is showing definite signs of improvement and the affects of economic slowdown are disappearing, the commercial side of realty is bound to see better days. He says that even though enough space is on offer in prestigious buildings, there will still be enough demand for good buildings in nice locations elsewhere. But, there is another opinion that due to various counteracting factors, it will not be easy for commercial projects to create buzz in market.

A spokesman of Integrated PanRealty Solutions Private Limited says while it is true commercial properties look to be in for better times, the situation is nowhere close to developments in residential projects. Explaining his stand, he says getting a loan for a residential project is much easier compared to getting one for a commercial project, as investment ticket size is bigger for commercial projects than in residential projects. In this scenario, it will take some time for commercial properties to be sold like hot cakes.

Some also say lease rentals are low due to poor demand of leased spaces; this is thus making commercial real estate lesser attractive than residential real estate. Several vacant buildings exemplify the challenge faced by investors in commercial properties. The maintenance cost is as high as Rs 20 psf (per square feet), even if the building is vacant, and wastage in common areas is as high as 40%.

Sunil Jindal, CEO of SVP builders, also says unlike residential realty, commercial realty is only improving. Citing the example of his firm's project, Ghaziabad-based Opulent Mall, he says more enquires are pouring in for space now. The good thing is some of the queries are serious and a few even translated into deals. "I expect that with an improvement in economy, Q2 results of most of the companies have surged, hence, from now onwards, companies of all sizes will buy commercial space." Rajeev Rai, vicepresident (corporate) of Assotech Ltd, feels this is just the right time to buy commercial property.

FOCAL POINT

Economy is showing definite signs of improvement and the affects of economic slowdown are disappearing, the commercial realty is bound to see better days A lot of office space is up for grabs as many big-ticket companies have shifted from bigger to smaller offices in the past few months after being hit hard by slowdown