 "IT/ITeS to drive demand for office space in 2012: Fitch")
Mumbai: Riding high on the growth in the IT/ITeS sector, demand for commercial office space will continue to grow in 2012, a survey by Fitch Ratings said.
The rating agency, in its report titled ‘2012 Outlook: Indian Real Estate Sector’, has hinted at a lower growth in the retail commercial space.[caption id=“attachment_185770” align=“alignleft” width=“380” caption=“Fitch Ratings logo. Image courtesy Fitch Ratings.”]
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“Though over supply of commercial space continues in some markets, the demand for office space (in 2012) is likely to be maintained at 2011 levels due to the anticipated growth in IT/ITeS, which accounts for a substantial demand for office space in India,” said the report released in Mumbai today.
According to a survey by apex infotech outsourcing industry body Nasscom, IT/ITeS sector grew by 21 percent in FY11 and this growth momentum will continue to 2012.
“Similarly, the expectation of higher employment growth in the sector in Tier II cities will boost demand for commercial and residential space in these cities,” the Fitch report said.
However, the demand for new retail space from the organised retail sector is likely to be low as many players, who have grown substantially in the recent past, have sought to consolidate their positions, it said.
The rating agency has forecast a negative outlook for the Indian real estate sector in 2012 due to weak overall demand and higher construction costs, which are likely to continue to squeeze margins.
“The demand for the residential segment was affected due to higher prices and an increase in mortgage lending rates. This trend is likely to continue in the first half of 2012. The lower residential demand is likely to drive down revenues in the sector this year.”
The report said high interest rates and lower household surplus reduced the affordability of homes.
“Purchases slowed significantly during H1 FY12 and are likely to continue at these new levels during the first half of 2012.”
Availability of funds will continue to be a concern this year as dependence on operational cash flows to fund growth and service debt will increase, it said.
“Foreign direct investment (FDI) and private equity (PE) funding has dwindled and a weak equity market no longer makes IPOs a viable funding option. All this, together with the banks’ cautious approach, limits fund raising options.”
“Thus, developers of commercial properties, which have stable rentals as a significant portion of total revenues, will have stable credit profiles but the outlook for the industry a whole is negative,” the report said.
The agency, however, observed that an improvement in demand, either due to a drop in interest rates or launch of new projects at affordable prices, would have the potential to improve cash flows to real estate companies and change the outlook to stable.
PTI