While India has for many years been the darling of the worldwide economy, pushing further and further ahead, demanding more and more natural resources and attracting enormous overseas interest, the last couple of years have not been easy. Growth in gross domestic product has fallen from around 10% in 2007 to just 4.4% in the second quarter of 2013. However, there are signs of a recovery in the Indian economy although whether we will move towards rates of 10% GDP growth in the short term is debatable.
The one thing which is becoming more obvious is the fact that commercial property across India is becoming more sought after by overseas investors and especially Bangalore. This is an area of India which has for many years now attracted significant investment in local infrastructure, commercial property and this has expanded across the region. Why are overseas investors now showing interest in commercial property in Bangalore?
Fighting for office space
First of all it is worth noting that the relative slowdown in economic growth across India is hitting all areas of the country. Indeed Bangalore is not immune from this slowdown and in fact it is starting to benefit the commercial property market which is going through something of a transitional period. As you would expect, at the first sign of a slowdown in economic growth many property developers began to mothball future investment plans although this still left a significant amount of office space in the pipeline.
Quote from PropertyForum.com : “According to a law governing Real Estate/Land Acquistion in the India foreigners are prohibited from buying houses and land in India. Because the land and population ration is not equal in India and Government want to save their land and natural resources for the country citizens .”
In recent years it has been difficult for some Indian property developers to find an “exit route” although this is beginning to change with limited supply and growing demand for commercial property in Bangalore. We have an array of overseas private equity groups ploughing hundreds of millions of dollars into commercial property across India with the likes of Blackstone and the Qatar sovereign wealth fund just two of the well-known names now targeting the region.
Why invest now?
At the moment vacancy rates for commercial property in and around Bangalore stand around 14% and rents have been a little subdued of late. However, if you look at some of the more popular investment hotspots the vacancy rate has actually fallen to around 5% in some of the more sought-after developments.
As a number of property developers were forced to mothball or cancel new developments just a couple of years ago, there is a lack of quality commercial property available to overseas investors. This lack of stock and an increase in overseas demand is starting to firm up prices and many experts believe this will be the trend for the foreseeable future. There is even evidence that rents are now starting to push ahead after a difficult period for commercial property landlords.
The future of India
While it has been a difficult couple of years for the Indian economy with a significant reduction in economic growth, there is still growing demand from large western conglomerates looking to break into the Indian market. We have IT giants, leading supermarket companies and an array of other business heavyweights looking for commercial property and where demand for commercial property emerges, heavyweight property investment companies will follow.
It will be interesting to see how the Indian commercial property market performs in the short to medium term with the current focus most definitely on areas such as Bangalore.