India’s Real Estate Concerns Point to Second Tier Cities

Real Estate in Bangalore, Mumbai, Delhi are all too expensive. The IT/ITES industry scaling needs to happen elsewhere:

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Kolkata is gradually undergoing a transformation which will have a long term impact on the city and its future growth. Earlier, Dalhousie Square (BBD Bag) gave way to Park Street, Chowringhee Road and Camac Street, as preferred commercial destinations and we may see a similar change in the medium to long term. The catalyst to this change is the emergence of the IT/ ITeS business sector and the resultant developments in Rajarhat.

This sector has been absorbing space in Sector V and Rajarhat, while corporate office demand is more subdued in and around Park Street. This does not directly imply loss of relevance of Park Street but does establish signs of a potential change. Given the competition, old commercial buildings in the Dalhousie area and the CBD are being renovated to improve building standards. Rental values are approximately Rs.65 in Park Street, Rs.45 in Dalhousie Square, and Rs.43 in Salt Lake.

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Pune has changed significantly and evolved as a dynamic Tier II business destination in the last 2-3 years. Prime and Grade A Office space rental values as well as capital values are up between 25% (CBD) and 45% (Periperhal) in the last 12 months.

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Chennai is witnessing an increase in supply in the suburban and peripheral markets, primarily along the Old Mahabalipuram Road (also known as the IT corridor) and Guindy. Prime and Grade A office space rentals are in the range of Rs.50 per sq.ft. for the CBD – Anna Salai, Rs.44 per sq.ft. for off CBD, T.Nagar and Nungambakkam, Rs.38 per sq.ft. for Suburban, Guindy and Perungudi, and Rs.32 per sq.ft. for Peripheral and Old Mahabalipuram Road.

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While Kolkata, Pune and Chennai are good opportunities, Hyderabad, it seems, is already booming, and many of the major players have already factored the city into their plans. Microsoft, ofcourse, has made the city their Indian HQ.