PUNE: The RICS India Commercial Property Survey showed signs of a fall in both occupier and investor sentiment during the third quarter of 2013 (July -September).
The Occupier Sentiment Index (OSI) for India fell deeper into negative territory during this period, going from -1 in the second quarter to -22. This was a result of a drop in occupier demand, a pick up in inducements and a moderation in near term rental expectations, although the latter still remain positive.
Sachin Sandhir, Managing Director, RICS South Asia said, "From the occupier's point of view, commercial spaces often involve more capital. Problems such as lower sales, cash flow crunch, expensive loans, high cost of labour and inflation have made occupiers cautious about their investments.
Meanwhile, Investment Sentiment Index (ISI) slipped back into negative territory with a reading of -23. This was a result of falling investment enquiries, a pick up in distressed property supply and a moderation in near term capital value expectations.
Weakness in the occupier market appears to be fairly broad based amongst the retail, office and industrial sectors.
"Concerns over the tapering of US bond purchases helped unsettle the currency which subsequently saw a further loss in value. This has contributed to the deterioration in the inflation picture which has forced the hand of the central bank in pushing up interest rates. As a result, growth expectations are being downgraded for both the remainder of this year and next.
These factors help to explain why sentiment in the real estate market has worsened. The supply of commercial spaces is growing faster than demand in the third quarter but rent expectations still holding up for now," said Simon Rubinsohn, chief economist, RICS.
Interestingly, in comparison to other BRIC nations the knock-on-effect on expectations for rent and capital values in India has so far been quite modest.