Residential real estate continues to struggle, office leasing strongest in three years

Sales in the residential housing segment have been gradually coming down since 2013-14, and the sector is struggling even after almost five years of sluggishness. As a result, inventory level continues to remain high in the segment, despite fewer project launches. However, commercial real estate, especially the office segment, is in a healthy state if we consider demand and leasing. Residential sector According to a report for the month of July 2018, by Kotak Securities Ltd, “All-India real estate sales across major cities clocked 22.2 million sq.ft in July 2018 against launches of 7.9 million sq.ft. We highlight that launches in July 2018 were significantly lower than the monthly average of 14.5 million sq.ftseen in the past 12 months. Consequently, inventory across India dropped 10% to about 1 billion sq.ft from 1.1 billion sq.ft in July 2017, reflective of the decreasing launch activity.” Though there is a decrease in the levels of inventory across India, it is still very high and it will take months for developers to clear it at the current sales volume. The situation is worse in the National Capital Region (NCR) and Mumbai Metropolitan Region (MMR). As per the Kotak report, “Across all metros, launches remained the lowest in Delhi NCR with only 1 million sq. ft released in July 2018 in peripheral regions of Ghaziabad and Greater Noida. Net unsold residential inventory in NCR stood at 243 million sq.ft as of July 2018 and is equivalent to 63 months of sales (based on average sales of trailing 12 months). Commercial sector While residential real estate is struggling, commercial real estate is witnessing healthy demand, especially in the office space segment. According to a recent office leasing report by Cushman & Wakefield India, “Commercial office market is witnessing a robust streak, buoyed by strengthening business confidence, and optimistic prospects in the fastest-growing economy in the world. Office leasing registered strong gains of 15% at 33 million sq.ft across the top 8 cities of India, during January-September, as compared to the corresponding period last year.” There is adequate supply in the office segment as well, which is keeping rent in control. “NCR region, comprising Gurugram and Noida, currently has the highest vacancy at about 29 million sq.ft, which is likely to keep rentals in check, as future supply is expected to keep pace with incremental demand,” stated the Kotak report.