Demand for office space is not fuelling housing sales

Growth in the commercial space is outpacing residential sales in catchment areas across the country due to a demand-supply mismatch. Developers need to get their deliverables right

Let’s start with a basic premise – that job creation leads to greater office space absorption, which in turn leads to housing revival. However, across the country, the recent uptake in office space has not translated into residential sales.

Before we find out why, let’s take a look at the rising demand for commercial space. On the back of growth in sectors such as IT and ITeS, banking and financial services, pharmaceuticals and to an extent, e-commerce, absorption of office space has risen to 2006-2008 levels. It is expected that 2016 will end up with 42-43 million sq ft absorption, pan-India.

 

Office space absorption in the past

A JLL report states that after witnessing sub-30 million sq ft of net absorption for 2012, 2013 and 2014, each, 2015 saw absorption rise significantly, to above 35 million sq ft. This is due to an aggressive expansion strategy adopted by many companies, particularly after going through a slow phase in the preceding three years, along with rising prominence of newer players in the e-commerce, healthcare and technology space.

 

CBD areas need affordable homes

Yogesh Mehra, CEO & co-founder, YOLO Homes, points out that residential supply in commercial hubs is not aligned with demand. Home buyers in and around workplace hubs want cost-effective residential solutions, which contribute to their lifestyle quotient but homes in CBD areas tend to be too expensive for their budgets.

“What is needed is an entirely new kind of offering, namely, well-appointed and fully-facilitated homes which do not break the bank. Size is of far less consequence than the convenience and comfort a home delivers in such a location. Homes that are too large automatically price themselves out of the market,” Mehra points out, adding that the bulk of this kind of demand for homes comes from young singles or working couples, who do not have massive budgets to spend.

Kishor Pate, CMD, Amit Enterprises Housing, says properties like this need to be priced right and the projects need to be in advanced stages of construction to induce buyer confidence. “For example, in areas close to IT and corporate hubs, we are seeing high demand for homes that are close to delivery date – around six months till possession,” he says.

 

Office space drives demand for homes

There is no denying that office space is still very much a prime driver. The commercial sector will continue to be the bellwether for the overall economic outlook as well as viability of residential and retail projects, and will always result in residential and retail development.

See also: Commercial and office demand determine residential realty trends

It is not only new office space that drives demand for homes. Existing commercial areas generate steady demand, which increases as office projects become populated and the usual process of churn realigns the tenants. New office projects in upcoming areas take a longer to attract such demand as the surrounding infrastructure and connectivity need to catch up.

 

The relation between office space and residential demand

  • Job creation leads to demand for office space, which fuels housing sales.
  • Office uptake not translating into residential demand.
  • Demand and supply mismatch is a major reason for the housing slump.

(The writer is CEO, Track2Realty)

 

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