KCLau's Money Tips Forum

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The Indian A-Grade leasehold office space markets are currently at an all time high; both in terms of the quantum of space leased per annum and the prevailing rental values. Our recent study reveals that the A-Grade leasehold office space sector across most cities is seeing the beginning of an oversupply situation that will continue in the short to medium term, even though the demand continues to be strong.

Our city-level demand supply analysis, seen in conjunction with the macro-economic fundamentals, clearly indicates that office space rentals are likely to hit a plateau between November 2007 and May 2008. This will defenitly increase the Real Estate Investment in India. Barring a few exceptions (primarily the CBDs), the oversupply situation will lead to a correction in office rental values. Or very simply, this correction in A-Grade office space rental values will not be driven by a lack of demand but due to the oversupply build-up.

That notwithstanding, we firmly believe that the Indian real estate markets are entering their next phase/wave of evolution. The Indian real estate cycle saw its last crest in 1995-96 and the following years saw real estate values come down across the country. This correction also marked the first wave of evolution of the Indian real estate markets. The prime drivers of this change were the large foreign occupiers / corporates and IT firms that were establishing their presence in India and the most pronounced impact of this wave was a complete redefinition of what constituted A-Grade office space (in India). It is of the opinion that on an overall basis, the Indian office space markets are now close to the second crest of the real estate cycle (after 1995-96). And the driver for this evolutionary phase of Indian real estate would be the sophisticated foreign capital that is finding its way into Indian real estate. This phase will again bring about significant changes in the Indian real estate sector and we believe that industry participants will go through a fast and somewhat painful learning curve.