Around 90 of the top 100 global retail chains want to be in India, commercial real estate consultant firm Cushman & Wakefield’s CEO , Asia Pacific, Sanjay Verma, tells Nivedita Mookerji. He speaks on the economic meltdown and its impact on the Indian real estate, big drivers for the sector, outlook for office space and international investors’ faith in the market. Edited excerpts:
How would you compare the Indian real estate with the global scenario?
The global economy is going through an interesting and uncertain time. I’m not a believer in the theory that economies are de coupled. Real estate is a unique business where, unlike in financial services, a large part depends on domestic consumption. And there, I believe, is a bit of de coupling.
Although it is yet to be seen how severe the impact of the impending slowdown would be, Asia, particularly India and China, would be relatively less impacted. But the next four to six months would be crucial to figure how the next one or two years are going to pan out. If the European crisis turns bigger, everyone gets impacted. Availability of capital is crucial for real estate and only domestic capital in a vast market like this cannot meet the demand. If the European crisis does not get bigger, then economies like India will be okay.
In 2008, the slowdown had begun with real estate and mortgaging issues. This time, it’s different. How do you connect the two?
In 2008, people were caught unaware. So, the response to the crisis was a little knee-jerking. This time, what has been brewing in Europe has been known to people, for almost two years now. It is not so much economy as it is politics. Everybody knows there’s a sovereign debt issue. The question is how the political class marries the economic class and figures out a solution. The problem is known, and the root cause, this time, is definitely not real estate or collapse of the banking system. My personal take is, it won’t go out of proportion.
Global brokerages have high hopes on the Indian retail sector. Following the rollback of the retail FDI decision, have things changed in terms of global perception?
We (Cushman) are the most dominant player in Europe and the US in retail, so, we are in touch with a large number of brands. Of course, there is bit of a disappointment (after the rollback) in investors and retailers alike. But people are still relatively optimistic as they think it’s a political problem. Largely, the world believes India will get its act together on retail FDI. From the international standpoint, India and China remain on everybody’s radar.
Who are the big international retail players waiting to enter India?
I won’t take names. But if you look at the global top multi-brand retailers, everybody will want a piece of action here because there’s a growing middle class. In the next 10 or 15 years, India will have one of the biggest consuming and producing classes. If you take a list of the top 100 retail brands globally, 90 per cent would want to be here across categories be it apparel, food and beverages, supermarkets or electronics. It is not who wants to come but why. The Indian retail market is under-developed, the density of organised retail is low and efficiency in the supply chain and distribution is missing. You have a huge opportunity to improve efficiencies in the system.
How does the office space look for the year?
Office space is more globally linked than residential. In 2011, we had a good story in the first half and not so good in the second half. We believe 2012 will be pretty much stable and stagnant. We are not going to see a big drop in absorption or a big escalation in rental. In India, vacancy rates are not very low. It’s in the range of 15 per cent, which will keep rentals in check. If there’s a greater global financial meltdown, people may stop taking more space. So far, there's no sign. But decision-makings have become a little more extended.
What are the big drivers for office space?
For India, technology continues to be a big driver. Banking and financial sector is also a driver. Pharma has also emerged as a major player. There’s some diversity — global pharma companies are spreading out on the R&D (research and development) side outside the US and Europe. In places like China, Hong Kong and Singapore, legal firms are expanding.
Overall, for the real estate space, what will be the biggest drivers?
Domestic consumption would remain the biggest driver, and residential demand remains the big chunk of the real estate sector in India and the Asian markets. It is a by-product of the commercial demand. So, the driver will be our gross domestic product growth rate and domestic consumption.
Do you expect big real estate deals in 2012 in residential and commercial space?
Real Capital Analytics captures data for all the deals above $10 million or so all over the world. In 2007, the total sales volume around the world was $1.3 trillion. This was the highest so far. In 2011, the total was $750 billion (after the economic slowdown). The interesting part of the story is, in 2007, Asia’s share in $1.3 trillion was 20 per cent. In 2011, the US and Europe had come to about 50 per cent of the peak, and Asia had surpassed the 2007 number. It showed that Asia has been much quicker than the other two regions and a big chunk of the global capital moved towards this region for investments.
Any specific deals?
I'm not going to tell you the names, but in the last two weeks, for instance, we have closed two transactions in India. One should be about $50 million to $60 million, and the other about $100 million. So, capital is coming even in these times. These transactions were in mixed use real estate, but more commercial.
