REAL ESTATE PUNE

There is a mixed bag of news for those who have interests in commercial and office space — that segment of real-estate hardest hit by the economic downturn. The good news first: there is a general consensus that are signs of life in what had gone into a quasi-comatose state. The not-so-good news is that both rentals and demand are still years away from the boom times’ best.

For almost a year, beginning with the third quarter of 2008, there was a huge lull in demand for commercial space of any kind, says Parag Borawake, General Manager, Marketing, for Pune-based developer Darode Jog Properties. “Frankly speaking, we also were offering any of our properties for lease as clients laid so many conditions,” he says.

Not sellers market, yet


According to him, evidence of a revival of interest began appearing a couple of months ago. It is still not a sellers market, but it has at least levelled. “We have signed letters of intent to lease out offices and retail space, and will close six to seven deals in the next month or so,” Borawake says, adding that there are also enquiries for built-to-suit spaces.

Pune has a vast oversupply of commercial space in all segments, be it IT, office or retail, avers Ravi Varma, a real-estate broker and President, National Realtors Association. While concurring that customers are returning to the arena, he cautions, however, that it will be a while before the space created over the last few years finds takers.

In the last ten months, nearly 1.3 million sq.ft was leased out to the IT sector, indicating that there are signs of revival. But there is still around 3 million sq.ft in various stages of development. So it will take two to three years more for the demand-supply mismatch to be equalised, he says. The rentals too are in the region of Rs 35-40 per sq.ft for the cold shell, against Rs 50-70 depending on the location at the height of the boom.

When it comes to retail space, it is the small stores that are beginning to turn the corner, while large commercial spaces, malls in particular, are still slow in the off-take.

Rentals competitive


Leasing of corporate office space and high street retail is definitely picking up, says real-estate consultant Andrew Pinto, adding that rentals are competitive and lock-in period is down from three-five years to one year. The businesses that are beginning to raise their head are banks, food outlets and retail brands.

According to observers, the most preferred area in Pune for commercial space is Jangli Maharaj Road and Deccan Gymkhana, where the prevailing lease rent is Rs 200 per sq.ft. followed by Mahatma Gandhi Road and Koregoan Park with rents here in the Rs 125-150 per sq.ft range.

Typically, proprietors prefer to sign agreements for 60 months with an MoU permitting extension for another four years.

The agreement usually provides for a raise in the monthly rent by 6-8 per cent at the end of every year, and a refundable deposit of 6-10 months rent that has to be paid upfront before the property is occupied. Most agreements are registered and the stamp duty and registration fee shared equally by the two parties.

In the good times, there was space for a little added bargaining, especially when it came to the lock-in period where the renting party usually had to give an assurance of rent for a minimum three-year period.

This clause is a prominent casualty in these still-a little-recession-hit times.