Growing Service Sector Enhances Commercial Real Estate

Commercial Sector Boom

Commercial Sector Booms with Service Sector Growth

Growing service sector of India drive the demand for commercial real estate. Real estate research firms reported that Service sector of India showed a greater pace of growth rate of 8.5%. This will result in the increased demand for more commercial real estate space.  In 2011 service sector occupied 70 % of office space and this is likely to be increased this year.

Information technology and other IT-enabled services, banking and other financial services, Insurance segments etc. claim the most space occupation. Office space absorption was significantly higher in all the main cities of India like Bangalore, Hyderabad, Pune, Chennai, Mumbai, NCR-Delhi and Kolkata.

The first half of 2012 witnessed a moderate demand for commercial real estate. This occurred due to the fact that office occupiers were so cautious and static about their expansion programs. Mr. Subash Bhola, Senior manager at Research at JLL India (Jones Lang LaSalle India) pointed that there is no chance for any major slowdown in demand for office real estate spaces. He added that the record growth of service sector at a pace of 8.5 % confirms this situation.

Contraction in industrial production, higher rates of interest and inflation hauled down the GDP Growth in the financial year 2012. But overall gross domestic product – GDP has been well supported by the 8.5% growth attained by the service sector Mr. Bhola Continued.

Information Technology and Information Technology Enabled Services (IT and ITES) had grown at a rate of 35% and BFSI industries had that of 16%. The demand for office space grown to 13% in 2011whereas two years back it was only 3.8 %. The details show that commercial real estate growth is highly dependable on growth of the service sector.

South Asia Executive Managing Director at Cushman and Wakefield India, Mr. Sanjay Dutt remarked that now the situation is very apt for the corporate world as there is sufficient space ready to be supplied. Moreover he notably pointed that more vacant space ready to be supplied keeps the price stable and within the limit of affordability.

He was of the opinion that the real driver of increased demand for space is BFSI. BFSI includes Banks, Financial Services and Insurance sectors. At the same time he did not ignore IT and ITES sector which demand the largest amount of office space.

The studies of C&W registered Mumbai on the top with the highest office space absorption of 2.23 million sq. ft. in the third quarter of 2012. This was a 50% over increase comparing to the previous quarter. Chennai and Bangalore stood the next two positions with office space absorption of 1.32 million sq. ft. and 1.25 million sq. ft. respectively. Pune too had showed growth but other cities like Hyderabad, Kolkata and Ahmedabad had gone down in absorbing office space.

Pune witnessed total absorption of 840,000 million sq. ft. This is nearly a 38% higher than the previous year. Total absorption for the year 2012 stands at 6% higher than the last year. The total office space absorption across major cities was recorded at 7.78 million sq. ft.

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