The property market in Gujarat is on a boom and the main focus is mainly on the residential apartments. However, office space is becoming a silent contributor and is acting like a catalyst in accelerating the pace of the market. Office space, though, lesser in transaction volume has a higher contribution in terms of its value and overall market sentiments of the state. More importantly, in terms of quality spaces, Return on Investment (ROI) and overall transactions, the Gujarat office market has performed better than the national average.
Office market in any given city is a true indicator of the potential of that property market. It is indicative of the fact that more jobs are emerging and thus, leading to retail growth. These two factors also have the potential to drive the residential property demand. The questions which arise here are: Has the Gujarat property market reflected on the fact that office uptake has been responsible for the booming property market across the state? More importantly, in future, whether the office market will be the prime demand driver of real estate in Gujarat?
Fact speaks for itself. Even though, there has been a decline in net absorption, it has been far better than other parts of the country. As per Cushman & Wakefield report, overall net absorption in Ahmedabad for the first three quarters of 2013 was recorded at 0.35 million sq ft, a decline of 37 per cent compared to the same period in 2012. Net absorption among all grades of offices for the third quarter stood at 76,000 sq ft, registering a marginal decline of 6 per cent from the previous quarter while grade A net absorption recorded an increase of 26 per cent quarter-on-quarter (q-o-q).
In terms of absorption and leasing activity, the city has been among the top eight cities during the year. Though, most of this absorption was concentrated primarily in the suburban submarkets of Prahladnagar and S G Highway, the existing high vacancy levels in these submarkets have led to a 6 per cent decline in quoted rentals at S G Highway and Prahladnagar. Low levels of pre-commitments in upcoming projects are expected to result in an increase of vacancies, thereby inflicting additional pressure on rentals in these two submarkets.
The city witnessed no new supply in the last two quarters. This has led to a decline in vacancies compared to a year ago despite the low transaction activity. Grade A vacancies have declined by 1.7 percentage points q-o-q to 31.3 per cent while all grade vacancies have dropped by 0.5 percentage points in the quarter to 14.2 per cent.
Rentals in the CBD declined by 8 per cent during the quarter, due to increasing vacancy in the sub-market. Most of the companies are opting for suburban areas due to non-availability of Grade A spaces in CBD. Rentals were stable at Ashram Road due to low vacancy and low transaction activity. Strata sales of office spaces continue to be the norm for most developments in the city and some projects have up to 60 per cent of their space sold to end-users.
Dhaval Ajmera, director, Ajmera Realty & Infra, says, “The current momentum for investment in Ahmedabad and Vadodara may be stable, but it is temporary as the state’s potential is strong and is based on real and concrete growth. It is heading towards a progressive path. Looking at the current scenario for the cities of Gujarat, as compared to other cities, the future yield will be high, making investors compliment their investment. Various industries in and around the city are fuelling the demand in state. Further, the property rates here are still realistic as compared to other cities which is a positive sign for investors and developers.
He adds further, “Real estate sector in Gujarat has shown tremendous developments in the last few years. It has proven to be one of the most sought-after locations when it comes to commercial properties, mainly due to its excellent infrastructure facility and being a trade hub. With the growth of varied sectors and industries,
Gujarat has turned out to be the home for many important IT companies, industrial and manufacturing units, corporations, KPO, BPO and ITeS firms. Hence, there has been a considerable rise in demand for commercial spaces to set up their offices.”
Manan Choksi, regional director, RE/MAX MGM, however, feels that since the beginning of the year 2014, there has been a contrasting change in the outlook and net absorption. According to him, the vacancy of commercial office space is reducing very fast and rental deals are more since 2013. New projects are picking up slowly but market looks positive in 2014.
“The focus is shifting from large offices to small offices with quality infrastructure. As far as Gujarat office market with respect to the other states is concerned, small and medium enterprise are ruling the office space consumption in Gujarat, while in other major cities, MNCs, banks, IT companies, and BPOs are the prime consumers of real estate. The next boom is expected in the office space of Gujarat realty as the empty buildings are occupied and new projects are soon to be launched. So, for the medium term, shortage in office space market is expected,” says Choksi.
The main purpose to move into quality office space is high quality physical infrastructure and keeping in mind the array of basic facilities like electricity, water, gas, district cooling, roads, telecoms and broadband. Further, today, modern hi-tech office spaces inculcate integrated townships, an entertainment zone, hotels, a convention centre, shopping malls, stock exchanges and service units. Gujarat is witnessing many such developments, hence, the percentage of people moving into quality office spaces is increasing at a faster pace. One such example is Gujarat International Finance Tec-City.
Analysts maintain that Gujarat has emerged as a forerunner due to all the improvements and progress displayed in terms of the activities to supplement the process of development. From real estate point of view, there is not one but many demand drivers for commercial properties in Gujarat like the infrastructure capacity, well maintained roads, flyovers and bridges.
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