commercial real estate in key metro cities witnessed an increase in absorption leading to a fall in vacancy as supply continues to play catch up
Residential real estate clocked sales of 22.2 million square feet across major Indian cities this year as new launches declined to 7.9 mn sq ft, Kotak Institutional Equities said in a report titled Real Estate: State of the market.
Sales continue to exceed launches, realisations inch up across cities
Launches in July 2018 were significantly lower than the monthly average of 14.5 mn sq ft in the past 12 months. Consequently, inventory across India dropped 10 percent to around 1 bn sq ft from 1.1 bn sq ft in July 2017. Prices saw a slight increase in July 2018 averaging around Rs 6,100 per sq ft (Rs 6,000 per sq ft in the first quarter of the financial year 2019), data in the report suggested.
As far as the National Capital region is concerned, sales activity remained upbeat at 4.3 mn sq. ft in July 2018. Across all metros, launches remained the lowest in Delhi NCR with only 1 mn sq ft released in July 2018 in peripheral regions of Ghaziabad and Greater Noida.
Net unsold residential inventory in NCR stood at 243 mn sq ft as of July 2018, equivalent to 63 months of sales (based on average of trailing 12 months). On monthly basis, prices remained largely flat in NCR in July 2018 at Rs 4,521 per sq ft (up only 1.4 percent year-on-year).
Launches in MMR remained upbeat at 2.9 mn sq ft in July 2018 (average monthly sales of 3.5 mn sq ft in the first quarter of 2019 and 4.4 mn sq ft in July 2017) led by new projects coming up in Mumbai and Thane. Sales too kept up with the momentum seen in the past month with 5.3 mn sq ft residential area being sold during July 2018, contributed from the same regions, the data suggested.
Average realization in MMR region inched upwards to Rs 10,300 per sq ft in July 2018 led by more sales in Mumbai region. Outstanding inventory in MMR remains the highest across metros at 290 mn sq ft as of July 2018 (equivalent to 54 months of sales), declining by 7 mn sq ft till the year to date of the financial year 2019.
Sales for Bengaluru market stood at 4.1 mn sq ft against launches of 2.4 mn sq. ft in July 2018. Launches averaged at 3.9 mn sq ft for the first quarter of the financial year 2018. Launch activity, though moderated in July 2018, is likely to pick up. Unsold inventory at 163 mn sq ft (as of July 2018) continues to be the lowest across regions in India.Commercial real estate—running a tight demand-supply balanceCommercial real estate in key metro cities witnessed an increase in absorption leading to a fall in vacancy as supply continues to play catch up. NCR region, comprising Gurugram and Noida, currently has the highest vacancy at around 29 mn sq ft, which is likely to keep rentals in check, as future supply is expected to keep pace with incremental demand, the report said.
MMR is witnessing strong absorption leading to decrease in vacant spaces. Limited new supply expected in central areas (BKC, Lower Parel) could aid improvement in rentals. However, suburban areas (Goregaon, Andheri, Navi Mumbai) have emerged as strong competitors in terms of supply and leasing.Of all metros, Bengaluru has shown robust supply and absorption of commercial space (average quarterly absorption of 2.8 mn sq. ft against average supply of 2.4 mn sq. ft in past 6 quarters) fueled by both IT/ITeS and upcoming BFSI/consulting sector in the region. Rentals in the next two quarters will remain stable on account of consistent supply pipeline, the report noted.