Well ahead of what market experts have been predicting, Pune’s commercial real estate market is already witnessing a major resurgence in demand. The clients I’ve been talking to for the last quarter and are definitely interested in growing their portfolios one more time, and some of them have really impressive growth plans.
The current scenario is a far cry from 2009, when the demand for commercial real estate in Pune clearly reflected the weak sentiments of the global market: absorption levels stood at approximately 1.8 million square feet. In stark contrast, this 2010 point already shows absorption levels of up to 2.3 million square feet, and our market researchers are confident that this figure is likely to rise to 3.0 million square feet by the end of the year.
Too good to be true? I would have thought so myself, but the evidence is there: Pune office space is back with a bang.
I would say that 2009 revealed the innate economic strength of local Pune companies, which held firm despite rather unfavorable market conditions. Without a doubt, any growth we saw was very conservative. 2010, on the other hand, is a literal sign of a resurgence in trust among IT / ITES companies, which have become quite aggressive in occupying office space once again. I also attribute the end of STPI benefits, the continued evolution of SEZ regulations, and DTC’s proposals for tax benefits as drivers of the rejuvenated absorption trend for both property types.
Approximately 66% of the total absorption in 2009 was in STPI schemes, compared to 34% leased in 2010 so far. Most of the 2009 takeover of existing companies in Pune. Very few of them were able to migrate to the SEZs last year and therefore most chose to expand within the STPI in 2009.
Momentum accelerated towards the end of the fourth quarter of 2009 and, in early 2010, clients were once again optimistic about the global economic scenario. Approximately 51% of the total space absorbed so far in 2010 has been in SEZs, up from 23% in 2009.
I feel like the ball game changed for the following reasons:
The first draft of the DTC did not foresee a tax holiday for SEZ units. A revised discussion paper published in June 2010 mentioned that tax benefits can only be used by SEZ units that become operational before April 2011. Many of our clients managed to secure a space to take advantage of SEZ benefits . Fortunately, the revised DTC bill presented in Parliament (which will take effect from April 2012, subject to amendment, the ratification gives SEZ units more time to start operating before April 2014. Still well, I see some changes that are not ideal.
Once again, clients are renting and buying corporate office space for front-end activities like sales and marketing. Banking and auto companies have contributed a lot to this growth. In 2009, commercial spaces represented 11% of the total absorption; That figure has risen to 15% in 2010, so far.
STPI uptake remains strong year-over-year as certain clients would not migrate to SEZ, or prefer to be within the CBD (although in Pune, SEZ options are fairly close to the city center).
So yes, Pune’s commercial real estate market is definitely looking at broader horizons again, but I’m still a bit uncomfortable with the huge offering. Currently, Pune is approximately 10 million square meters. foot of stock available available:
- 1.6 million square feet within the EEZ
- 6.4 million square feet within STPI
- 1.4 million square feet within conventional commercial projects
Obviously, developers see this in their own way: while certain top-tier developments are renting space fairly quickly, the general availability of available stock will keep price increases in check. The real challenge would be to vacate the existing STPI shares. While SEZs have fewer stocks on hand, there is still a large inventory that may be on hand.
All in all, the sectors that have driven most of the growth in the recent past are:
- IT (software development)
- ITES (BPO)
- Automotive engineering
Like everyone else in the field, I keep my fingers crossed for continued growth, but a lot depends on how quickly the government provides the necessary infrastructure. In particular, improved air connectivity would be a real boost. Let’s hold our collective breaths and see what happens on that front …