Glut in commercial real estate in city will make property values settle at 2010 levels: Report.
Ahmedabad's commercial realty will experience a supply-surge of 3.6 mn sq ft in 2009-11 against the estimated demand of 2.5 mn sq ft; the oversupply will stabilise commercial realty's outright values at current levels in 2010. This is a key forecast of the 2010 realty report issued by the Credit Rating and Information Services of India Ltd (Crisil).
Though a large number of Special Economic Zones (SEZs) have been planned in Ahmedabad and Gandhinagar, the report does not expect them to come up in the 2009-11 period.
As for the oversupply in commercial realty, it has affected the retail lease rentals; that is the reason why the rates are expected to settle down at current levels.
Retail lease rentals have declined sharply on the SG Road, raising the vacancy levels. The average lease rentals on the SG Road declined by 20% during the March-November period in 2009. Crisil estimates that 1.9 mn sq ft of retail supply will be available in the market in 2009-11, but the planned supply is 3.4 mn sq ft.
A majority of the upcoming malls are being developed in western Ahmedabad. At any rate, retail lease rentals are expected to stabilise at current levels with a gradual pick up in transactions being expected in 2010.
Lakshmi Narayanan, the president and CEO of Real Estate Bank International Ltd, (REBI), a national realty consultancy, agreed that there was an oversupply in the city's commercial space. He said, however, there were chances of growth in the coming period. "I believe that Gujarat has great potential for growth and therefore it will not face many problems in coping up with the situation," Narayanan said.
Experts believe that the oversupply will unleash cutthroat competition and cause developers in areas that lie far from the central business district (CBD) to offer lower rates. In the circumstances, developers are also expected to work towards community-centric growth, focusing on value-for-money products.
The report also states that commercial realty in Ahmedabad is being led primarily by sectors such as banking, financial services and insurance (BFSI); telecom; pharma; and textile. Commercial realty was buoyed by a gradual pick up in transactions involving small and medium enterprises; private and PSU banks; insurance firms; and FMCG companies. Development spurred by IT/ITeS companies is slowly picking up momentum in the Infocity region of Gandhinagar.
Be that as it may, not everyone in Gujarat agrees with the Crisil report. For instance, the president of Gujarat Institute of Housing and Estate Developers (GIHED), Suresh Patel, said that 2011 would be a better year for commercial segment's development.
"The year 2008 was not that good for the realty sector, but since then there has been an improvement in rental rates of commercial property," Patel said.
He said that as far as he was aware, no new commercial properties had been launched over the past one-and-a-half years. Further, he said that the players who featured in property shows would choose the mixed-development model (commercial development along with residential property).
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