Realty to ride high

A FICCI-E&Y study proves that development transactions and long-term projects will drive growth in real estate.

The fact that the rapidly expanding real estate sector is going to get more lucrative was already well known. But now more encouraging news has come in the form of a FICCI-Ernst & Young study which further endorses that Indian realty is in for a fantastic future.

The main drivers would be long-term projects in emerging sectors such as financial services, pharmaceuticals, telecommunications, and biotechnology followed by increasing development transactions and emerging opportunities in commercial offices, residential, hospitality, and retail and entertainment segments.

IT and ITeS industry, itself may require an additional office space of over 367 million sq ft by 2012-13 which will drive growth in the commercial office segment. Strong growth in emerging sectors such as financial services, pharmaceuticals, telecommunications, and biotechnology will also boost demand and broaden the occupier base.

In the residential segment, urban housing is short of approximately 9 million units. The Asian Development Bank estimates that this deficit will escalate to around 22 million units by 2007/08 and by 2030 India, will need up to 10 million new housing units per year.

But the study highlighted that the development of the Mass Rapid Transit System is a must to make people comfortable to the idea relocating to new areas.

In hospitality there are an estimated 1.2 million hotel rooms in the country, of which star hotels account for a mere 7% (approximately 80,000 rooms). The government estimated that there will be a total of 2.9 million and 6.6 million hotel rooms in India in 2010 and 2020 respectively.

On the commercial retail and entertainment front, industry estimates suggest that India’s eight largest cities will experience a supply of around 66 million sq ft by 2008 in retail space through more than 200 proposed retail centers. In the next seven largest cities, around 38 centers with an estimated 13 million sq ft of retail space is being planned by the end of 2008.

Another major consumer for realty would include the rapidly expanding medical sector.

Additionally, several upcoming and proposed Special Economic Zones (SEZs) are expected to provide the next generation impetus to the commercial office space development in the country.

But the future is far from certain. Any unforeseen downturn in the performance of IT/ ITeS industry will have a significant impact on the vacancy levels of the upcoming commercial office space stock in the country. The concerned in realty must be cautious about this and be in a position to have alternate plans to fulfill the vacant space if need be. So the real challenge for realty players would lie in estimating market demand and validating supply of any additional commercial space.