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aside areas. As a result, demand for property has been far greater than supply resulting in high barriers to entry
in the real estate market due to the necessity of large amounts of capital to become an established developer.
The transaction rate in the commercial real estate segment remained low during 2009 despite the improving
economic environment and business sentiments since uncertainty over the medium term still prevailed and
corporate held back expansion plans and switched to a cost cutting mode. The cost cutting initiative saw several
corporate relocating from locations with high rentals to ones with cheaper rentals.
The Mumbai Office market witnessed a strengthening of demand during 2010. In the prime micro-markets of
the city rents stabilized while leasing activity and enquiries for office space increased. In Q2 2010, Mumbai
witnessed two major land transactions at prices that were even higher than those recorded during 2007. These
events reflect the improved confidence of developers on the city that arose from improved economic conditions
and rising demand for real estate.
Mumbai’s prime micro-markets recorded a total net absorption of about 1 million sq. ft. (92,264 sqm), the
majority of which was generated by the Banking, Financial Services, and Insurance (BFSI) industry and other
front office occupiers. Rental Values in the prime micro-markets of Mumbai are expected to remain stable over
the next 12 months. With the improving economic scenario and strengthening demand for commercial space,
the number of leases and sales is expected to increase in the coming quarters. The increasing demand will
provide some relief to developers, but a substantial supply pipeline will keep rents under pressure in the short
term.
(Source: - Jones lang sale, Second Quarter, 2010)
Retail Segment
The retail sector in Mumbai is segregated into high street and retail malls, which are concentrated in and around
areas such as Lower Parel, Bandra, Andheri, Malad, Mulund, Thane and Vashi.
Organized retail penetration is
set to rise from 22.0% in 2007-2008 to 40% in 2012-2013.
Despite improved business sentiment and strengthening domestic consumption, net absorption in Mumbai’s
retail real estate market remained very low. This was primarily due to lack of new malls and low leasing activity
in operational malls in Q2 2010. The city witnessed net absorption of approx. 28,000 sq. ft. (2,615 sqm) in
operational malls in Q2 2010 compared to 573,761 sq. ft. (53,304 sqm) during the previous quarter. The bulk of
absorption in the current quarter occurred within Mumbai’s Suburban market, which has a high concentration of
malls that are newly operational or under-construction. The city’s prime retail micro-markets are at saturation,
with no new supply in the pipeline and limited space available for lease in operational malls.
No mall completions were recorded in Mumbai during Q2 2010. The city has a total of 12.66 million sq. ft.
(1.17 million sqm) of operational retail space with a vacancy of 22.8% which dropped marginally by 20 basis
point from Q1 2010 levels.
Some of the malls that are presently under construction are likely to get delayed due
to decreasing demand and the potential slowdown in lease rentals.
(Source: - CMIE)
Future Outlook in Retail Sector
Demand for retail space in the city is expected to improve as we move further into 2010. Strengthening
consumer confidence, improving economic conditions will result in higher consumption and are expected to
drive the retail estate market in the city. Approximately 2.7 million sq. ft. (249,445 square meters) of additional
mall space is expected to become operational by end of 2010.This significant future supply in Mumbai’s retail
market is expected to keep rents under pressure throughout the year. (Source: - Jones lang sale, Second
Quarter, 2010).
Conclusion
The Indian real estate sector promises to be a lucrative destination for foreign investors into the country. The
Indian realty sector, if channelized properly, could catapult the growth of several other sectors in India through
its backward and forward linkages. However, there are potential constraints for domestic as well as foreign
investments in India. Absence of a single regulator to monitor business practices prevailing in Indian real estate
market is perceived to be a risk factor by investors. The SEZ guidelines which are issued by the Ministry of
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Commerce are constantly modified, creating uncertainty. Since the liberalization of FDI norms, significant
foreign investments have flown into real estate; but availability of suitable exit options for such investments is
still constrained.
Maturity of the real estate markets will lead to infusion of foreign investment and adoption of international best
practices by real estate players. Developers will get more organized, and become more transparent to avail
opportunities emerging in the market. With the Indian securities market regulator SEBI allowing real estate
mutual funds (REMFs) in India, equity investors will have an exit option available to them. All these factors
will contribute in making the Indian real estate market more organized and structured, thus providing better
investment opportunities.
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