Kolkata’s office-leasing market has seen an addition of 6 million sqft over July-December 2019 — the biggest addition the city has seen over the past five years. But both residential sales and project launches have seen substantial decline.
The commercial space addition has brought some cheer to the Kolkata market, which had not seen any new commercial space being added in January-June 2019.
The addition has come primarily on account of delayed projects — running at least one to two years behind schedule — being completed. There is also hope of big-ticket leasing activity picking up in the first half (January onwards) of 2020, driven primarily by the information technology, ITeS (IT-enabled services), and the BFSI (banking financial services and insurance) sectors.
The total available commercial office space, in the city now stands at nearly 10 million sq ft, according to estimates by property consultant Knight Frank India. Most of the new office space has come up in the northern fringes of the city, including the satellite township of New Town and Sector V, and in the secondary business district around EM Bypass and Kasba.
In 2019, over 1.3 million sqft of commercial space was leased, a near 45 per cent year-on-year jump (0.9 million sqft). Leasing in 2019 was driven by IT majors and some banks that took up new office space in the city’s satellite townships.
“In 2020, we hope around 1.5 million sqft of office leasing activity will happen,” Swapan Dutta, Branch Director – Kolkata, Knight Frank India, told BusinessLine. In 2012, the city had witnessed its highest office and commercial space leasing activity of nearly 2 million sqft.
However, market sources are also worried about there being excess supply. According to Dutta, it is unlikely that top-grade office spaces will be added in the immediate future, especially in 2020.
“We don’t foresee any immediate office space addition in 2020. If approximately 1.5 million sqft of space is absorbed this year from the existing pool, by that benchmark, it will take at least two-three years before new office space can come up,” he explained.
On the flip side, the addition of new office space might also see some adjustment in rent. For instance, Kolkata’s average office rent hovers around ₹40 per sq ft. Depending on micro-markets, rents vary from ₹25 per sq ft to ₹90. .
The national average of office space rent works out to ₹80-90 per sqft.
Dutta says that with excess office space being available, the actual achievable rent could see some downward movement. “Ideally, rent per sq ft of office space could hover at ₹35-40, depending on supply issues. However, as large-scale leasing takes place, the average rentals could also move up,” he said.
Poor residential sales
However, poor residential sales continue to haunt Kolkata. Overall, house sales have seen a 12 per cent decline in 2019 to 11,266 units, compared with the same period in 2018.
“Regulatory issues like registration of properties under HIRA (West Bengal Housing Industry Regulatory Authority) saw poor sales in H12019, and this led to an all overall decline in house sales for the full year,” Dutta said, adding that house prices in Kolkata have seen a 3 per cent rise, primarily due to a rise in input cost.
“Affordable housing sales are expected to drive growth. But there will be some pressure on the premium end, as long as the economic uncertainty persists,” he maintained.
While most activities concentrate on the ‘affordable housing’ segment (priced ₹25-50 lakh), Knight Frank India’s report shows that there has been a 53 per cent decline in launches for 2019 to 5,654 units, and a 11 per cent decline in H22019 (July-December).
The first half of 2019 (January-June) saw just 627 projects being launched, while in the second half, 5,027 units were launched.
“In H1 there were no launches practically. Developers had teething troubles in understanding the project registration processes under HIRA. This negatively impacted launches,” Dutta said.
On the other hand, unsold unit stocks stood at around 33,000. This, according to Knight Frank, is the highest decline in unsold inventory over the past two years, and around 11 quarters are required to liquidate the existing inventory.