Most of us are aware of the reasons behind the unprecedented turn down of the Global and Indian economy. In the current real estate market scenario, Sentiment, Supply and Affordability would be the three forces which will affect the rental envelope in the near future. Our latest research provides insights into the precincts that are expected to correct in varying degrees depending on the prevalent push and pull magnitude of these forces.
The Slope of Descent paper details out the underlying forces of the rental adjustment process – the cases of weak and strong sentiment and their impact of rental recovery or correction in various micro markets. Our unique “Rental Rubik” provides insights about the Increase in Rental Values and Expected Vacancy Gap for 2009 across various micro-markets; and the Commercial Property Clock to decode the rental movements in the torrential market scenario.
Please click here to download the full report
The principle of ‘greater fool’ states that during an upswing of sentiments, people tend to buy into the most questionable deals at high prices, as they are confident of selling to a greater fool at even higher prices later on.
The principle of ‘mean reversion’ states that when prices rapidly move away from their mean price, they will revert to that mean in the short term. If prices fall rapidly, they are likely to rally in the short term – and if prices rise rapidly, they are likely to fall in the short term.
Executive Summary
- During the real estate boom from 2005 to 2008, a sentiment-driven upswing generated unparalleled demand, leading to a decided undersupply situation across Indian cities.
Exaggerated expectations of future growth led to the planning of even more projects with larger floor plates, and the cities’ suburban landscape were soon spiking with the onslaught of tremendously increased construction activity. - In mid-2008, highly non-amenable global economic conditions reached Indian shores, and their ripples were increasingly felt by the real estate sector. While tenants’ expectations and affordability followed a declining curve, landlords still resisted change and held on to their existing price levels.
- In 2H08, the market took a U-turn from being landlord-driven to being tenant-driven. Valuations got better, and rentals fell in search for a right price to evoke interest in tenants.
- Sentiments, supply and affordability are the three forces which affect the rental envelope of a real estate market. The precincts are expected to correct in varying degrees depending on the prevalent push and pull magnitude of these forces.
- As the market shows signs of stability after a couple of quarters, we expect considerable opportunities for firms to cut down their operational costs and restructure their real estate portfolios.
- We expect the market’s recovery to be subtle and steady with the return of positive sentiments, with developers and occupiers gaining experience from the present crisis. While non-affordability and oversupply-led correction will push commercial market in India to favour tenants in the short term, the long term will see it transform gradually into a landlord-driven market once more.
Himadri Mayank
Senior Analyst, Research & REIS, Jones Lang LaSalle Meghraj
Himadri.mayank@jllm.co.in
Himadri Mayank joined Jones Lang LaSalle Meghraj REIS team in July 2008 and is responsible for tracking and monitoring market activity and trends in office, retail and residential property sectors for Indian cities. Based out of Mumbai, he also contributes towards regional and local research publications covering economy, sector analyses, market forecasts and investment strategies.
He holds a degree of B.Arch. from Indian Institute of Technology Kharagpur and has two years of experience in the field of construction and architecture.
Abhishek Kiran Gupta
Associate Director, Research & REIS, Jones Lang LaSalle Meghraj Abhishekkiran.gupta@jllm.co.in
Abhishek Kiran Gupta leads the Jones Lang LaSalle Meghraj India Research team and is based in Mumbai. He manages research operations on a Pan-India level and is responsible for the team’s outputs, including research reports such as topical white papers, property market digests and bespoke research projects based on specific client requirements. Prior to joining Jones Lang LaSalle, he had seven years of experience in market research, business analysis and market strategy consulting, servicing diversified industries including pharmaceutical,
software publishing and insurance.
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