Office space absorption drives residential market of Pune
Feb 12, 2014
Source : The Times of India

 

PUNE: Pune’s property market remains buoyant and expectant about the upcoming year, despite the economic slowdown and the general mood in the market. Given its performance last year, of being the second highest office space growth market after Mumbai, Pune’s realty sector is all set to get a boost this year. Infrastructure has always remained one of the leading factors for driving this growth. Great connectivity to Mumbai and a slew of projects on the anvil, such as the metro rail and Bus Rapid Transit System (BRTS), will augment this growth in the future.

Most cities have witnessed a decline in net absorption in the range of 20-40 per cent during the year 2013, except Pune, where incremental new space take-up increased by 15 per cent in 2013, according to a Cushman & Wakefield report. “Investments in office assets have been concentrated in the cities of Bengaluru and Pune. Large investment funds have also invested majorly in office assets in Pune, primarily in the micro-markets of Hinjewadi and Kharadi. According to the year-end realty report from DTZ, this decrease in vacancy reflects an increase in the office space demand, primarily in Delhi-NCR, Pune and Mumbai, in the fourth quarter. Pune reported the highest growth in office demand at 26 per cent, quarter-on-quarter. At the end of 2013, the total take-up for the entire year stood at 27 million sq ft – in line with but slightly lower than the 27.3 million sq ft recorded in 2012. Pune and Mumbai witnessed the highest growth in take-up of 52 and 17 per cent, as compared to their take-up in 2012, according to the DTZ property report.

“The absorption of office space in the year 2013, stagnated to 27 million sq ft, showing no growth over the previous year. The net absorption or new demand was even lower as bulk of the above demand came from relocation/consolidation into better buildings or location. The year 2014, will continue to be challenging for the commercial realty market. Although the global economy is expected to improve, the uncertain political and business climate in India will continue to create uncertainty in the business houses, which is likely to result in low uptake of fresh space,” opines Anshul Jain, chief executive officer, DTZ Realty.

“Investors have taken a keen interest in office spaces, especially in future highgrowth locations. Of the total investment in the commercial real estate market, majority has been in the Hinjewadi region, which is expected to see the majority of office leasing activities. These markets will remain tight, with a balance in office absorption and supply and will see the highest quantum of leasing activities at competitive pricing in the next 12-24 months,” adds Dutt.

According to the Cushman & Wakefield report, the commercial real estate market of Pune witnessed total net absorption of 3.5 million sq ft, recording an overall increase of 15 per cent, nearly 78 per cent of which was in Grade A spaces. This significant rise in net absorption of Grade A spaces can be attributed to the growing preference amongst occupiers for quality developments.

The city witnessed a total supply of 3.5 million sq ft, of which 3.2 million sq ft was contributed by Grade A development. The total supply increased by nearly 66 per cent as compared to 2012, with the majority spread across locations like Viman Nagar, Kharadi, Hinjewadi, Airport Road and Kalyani Nagar. This led to a rise in vacancy levels from 21 per cent in 2012, to 23.5 per cent in 2013. Approximately, 5.7 million sq ft of office space is expected to come into the market in 2014, of which Grade A spaces are expected to contribute nearly 65 per cent. Most of this supply will be concentrated in areas like Airport Road, Yerwada and in the suburban and peripheral areas of Kharadi, Viman Nagar, Nagar Road, Hinjewadi, Baner and Balewadi. This inflow of supply is expected to drive up the vacancies across sub-markets, as transaction activity is expected to remain stable.

Driving residential growth

The city’s rising clout as a preferred destination in the country and its growth story of having the distinction of being the only city that recorded a positive growth of 15 per cent in net absorption in 2013, makes it ideal for investment in residential units. “In 2013, mid-segment (Rs 40-80 lakh) apartments accounted for 50 per cent of the new launches in Pune. Demand for the mid-segment housing category has been observed in Hinjewadi, Wakad, Thathawade, Ravet, Kharadi, Wagholi and Talegaon,” says Shrinivas Rao, CEO-Asia Pacific, Vestian. “Neighbourhoods in west and east Pune, like Hinjewadi, Hadapsar and Kharadi, are steadily witnessing high residential activities due to the presence of IT/ITeS clusters. Capital values in these locations are likely to witness appreciation in the short-to-medium term due to its proximity to IT/ITeS hubs and the Mumbai-Pune Expressway,” adds Rao. The demand for housing close to these belts, has given rise to the development of many residential units and the rise of social infrastructure such as retail outlets, schools and hospitals to cater to the workforce living here.

According to Ganesh Vasudevan, CEO, IndiaProperty.com, “The demand in the mid-segment is still there but buyers are more inclined to buy flats which are already constructed, as against those in the planning stages. The reason for this has been attributed to the slowdown in the economy and thus, buyers are not willing to take a chance on whether the builder will be able to complete the project or not. A marginal price hike is expected in this segment by the end of the year.” With many auto giants, IT and manufacturing companies located in these localities, employees prefer to live close to their offices.

“Over the last two years, Pune has prevailed as one of the country’s best-performing residential real estate markets and will not witness a price correction across the range of housing categories. Owing to its strong end-user driven market, this city is likely to witness demand for mid-range housing in the short-to-medium term. The primary contenders for residential space, chiefly comprise of employees from the IT/ITeS, automobile, manufacturing sectors and investors from Mumbai,” concludes Rao.

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