Commercial Space Rents in India May Rise in Few Quarters: Survey

Rentals for office and retail spaces in India are expected to increase in the coming quarters on the back of rising demand, according to a survey by Royal Institution of Chartered Surveyors (RICS), a global body for setting standards in the property sector.

In its latest report, RICS said demand for office and retail spaces rose during the quarter ended March.

"There are positive indicators in the market. The occupier demand for the first time since 2011 has outpaced the rise in availability (though marginally). This means that there is healthy demand for quality space in the market," RICS South Asia managing director Sachin Sandhir said in a statement.

Rents have bottomed out over the past few quarters, he said, adding that they are expected to rise from these levels.

"Driven by demand across office and retail segments, rents across commercial real estate are expected to witness a hike over the coming quarters across all segments on account improving economic environment," RICS said in the India Commercial Survey for first quarter of 2014.

The report said that capital values are expected to remain broadly stable in the coming quarter.

"The Indian economy is gradually recovering and showing signs of stability. The recent monetary policy measures undertaken by the Reserve Bank of India (RBI) has improved the course of recovery. As widely perceived, it is likely that the stable government at the centre will help the industry to bring back reforms for the real estate sector," RICS said.

According to the survey results, the Occupier Sentiment Index (OSI) edged into a fairly neutral territory at +7 following the previous value of -13, ending a run of 7 consecutive negative readings. However, demand for industrial space fell during the period.

"It is expected that the newly elected government will bring reforms for the sector, which is grappling with problems such as regulatory bottlenecks, rise in interest rates, limited availability of quality space and inflation," Mr Sandhir said.

While rents are expected to rise, there are expectations in the market that transaction levels will increase.

The Investment Sentiment Index dropped to touch -8, from last quarter's reading of -1.

"Investor interest diverged between sectors, with the office segment registering material growth, while enquiries fell in both the retail and industrial areas of the market," the report said.

Despite a drop in investor sentiment, the survey said transaction levels are projected to increase over the next three months with the office sector looking set to outperform in the near term.