Published & Updated as on - 2010-03-30

You know retail is doing well when noodles, cola and chips start selling well, says Mr Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj, quoting a retailer he was speaking with to gauge the demand for commercial real-estate.

Mr Puri points to news reports of Indian and multinational companies starting recruitment after a lull in the last couple of years; outsourcing is picking up with more US companies looking to India. JLLM has enquiries on hand that indicate a good demand for commercial space — retail and office including IT and non-IT. Things certainly are looking up for 2010 which will see a pick-up, says Mr Puri confidently.

He was talking to a group of journalists along with a team of senior representatives from JLLM, including Mr Colin Dyer, President and Global CEO, Jones Lang LaSalle Inc, and Mr Ramesh Nair, Managing Director (Chennai and Hyderabad), Jones Lang LaSalle Meghraj.

Confidence in retail is increasing but the real action will be in office space offtake, they say. Office space offtake will be about 28-30 million sq.ft in 2010 compared with about 21 million in 2009.

A significant upswing even if it is yet to scale the peak of 2007 when it touched about 32 million sq.ft. The demand would be from telecom, healthcare, pharmaceutical sector and from consolidation of office space — that is companies upgrading to newer and modern buildings that are on offer.

Asia to fuel recovery

In line with the economic recovery trends, says Mr Dyer, the real-estate market will do better in Asia where the countries lead the economic recovery while Europe and the US are still recuperating from the hit over the last two years. Commercial real-estate continues to be short of funds as banks are loathe to lend. But some recovery is happening in major centres such as London, Paris and parts of Germany where investor interest is driving transactions as they foresee opportunities as recovery takes hold.

In the US, the ‘markets are still hit' and lending is hard to come by in real-estate, he says. Equity investors are not yet convinced that the worst is behind or that the market has seen the bottom. But companies that have managed to consolidate over the last two years are better off in terms of liquidity and are now beginning to make investment decisions. They are particularly keen on investments that will support cost reduction, which means outsourcing to the Philippines and India, according to Mr Dyer. “The first phase in investing is in cost cutting,” he says.

Bangalore in spotlight

According to Mr Puri, US companies in healthcare, insurance and IT will drive demand for space. Another significant feature will be that this will be relatively high-end jobs and quality space with R&D and knowledge process outsourcing (KPO) in addition to the run-of-the-mill call centre and software space. Nearly 80 per cent of the expected demand in office space for 2010 would be from US companies with three-fourths from IT and related areas and the rest from other corporate segments. Bangalore would be a major beneficiary among the metros, he says. JLLM, a leading international property real-estate consultant, has the enquiries and orders on hand for space that show 2010 could see a change for the better.

Mr Nair says office space absorption in 2008 was about 2.6 million sq.ft in Chennai against 4.1 million sq.ft in 2008 and 7.2 million sq.ft in 2007. Nearly 10 million sq.ft of office space is lying vacant, of which, IT space is about 7 million, SEZ space about 2 million sq.ft and others non-IT. But in 2010, in the first three months alone, there is demand for about a million sq.ft of office space with JLLM which is an ‘extremely good sign' he says.

Mr Puri points out that office and retail space were worse hit than residential space and are recovering. For instance, initial estimates of office space supply were about 200 million sq.ft between 2009 and 2011 with about 70 million sq.ft each year. But following the slump in demand, developers are slowing down supply and delivered only about 19 million sq.ft in 2009. Much of the commercial space was converted into residential projects.

Source: Hindu Business Line 28/3/10