As a result, developers have deferred a majority of the ongoing commercial and retail projects, which were scheduled for completion in 2009-10, and are instead focusing on the residential market. In fact, according to real estate consultants Cushman & Wakefield, developers will be forced to defer 41 per cent of the projected office space supply in 2009.
"Out of 76 million sq ft of commercial (office) space projected across eight cities by many developers, only 45 million sq ft is expected to be completed in 2009. In the retail segment, out of the 14.5 million sq ft of projected space, only 3.6 million sq ft is expected to enter the market," Cushman & Wakefield's Executive Director Kaustav Roy said.
The supply overhang in commercial and retail segments is expected to continue for another 12-18 months, feel experts. At the same time, a sharp decline in the price of residential units - in terms of per sq ft rate as well as size - has resulted in a sharp increase in demand. As per conservative estimates, 60 million sq ft of residential space has been lined up for launch in 2009.
One of the key reasons for this poor demand in commercial and retail segments is the nonavailability of Real Estate Investment Trusts (REITs), which could not take off because of complex legal hurdles and the sudden crash in the stock market in 2008.
While many of the real estate companies - such as DLF Asset Ltd, Unitech, Indiabulls [ Get Quote ] Real Estate [ Get Quote ] and Purvankara, among others - were planning to raise resources through REITs' listing, only Indiabulls successfully raised $286 million by listing its REITs on the Singapore Stock Exchange.
The failure of REITs to take off has affected the financial position of developers and, in turn, further delayed the completion of ongoing retail and commercial projects.
"In the past one year, everything has been against the commercial real estate. Private equity vanished from the markets, while the government increased risk rating on the real estate sector. The failure of REITs to pick up added to the financial crunch of the developers," commercial real estate services company CB Richard Ellis' chairman and managing director Anshuman Magazine said.
"Developers are not in a position to complete their commercial projects due to a lack of funds, a demand-supply mismatch and falling rentals," he added.
The country's largest developer, DLF, has already received an approval to denotify four of its SEZs. In addition, it has also temporarily stopped construction work on nearly 16 million sq ft of office and retail mall space out of the 62 million sq ft of planned construction.