Resurging Pune

One of my greatest worries was the slew of malls that was going to hit the market at a time when it was probably at its lowest ever. Who were we going to populate them with,both in terms of retailers and customers?

IMPROVING SCENARIO

0I wont say that the market is back with all guns blazing,but matters have improved considerably now. The residential sales and retail lease figures for the month of July 2010 look astonishingly different than from this time last year. I always tend to look at retail leasing first,because the health of the retail sector is a rather accurate barometer of what is happening to a citys economy. On that count,Pune has had an almost miraculous turnaround. The malls I mentioned are opening on schedule,and all have an almost full complement of anchor and vanilla brands,and shoppers are back in force.

Its not all because of the economic revival,either. Punes real estate market may not be in the same league as Mumbais,but it does have one advantage over its glamorous neighbor its players think faster on their feet. Last year,mall developers were keeping afloat by offering hefty discounts to retailers; this year,the entire leasing roadmap seems to have changed. I recall one conversation between a major retailer and a mall developer just last year. The retailer was stating that a pure rental model did not make sense,since he would not make enough business in a downturn to justify it. The mall developer simply said,That is your problem.

The terms minimum guarantee and revenue sharing were alien to Punes mall developers a couple of years ago today,they are an accepted norm,and the primary reason why none of the new malls are standing empty. There are obviously some traditionalists among our developers who refuse to give in to such New Age concepts,but I can clearly see that the tide has turned in the favor of progressive pricing models now. Retail real estate in Pune will live to fight another decade.

LONG-TERM POTENTIAL

As far as residential properties are concerned the sector is moving again since the last six months. We had previously thought that the returning demand would fizzle out by April,but that has not been the case. The impression I get from my discussions with our Homebay Residential team is that Punes home buyers are once again convinced of the long-term potential of their investments.

For mid-income homes,the hottest-selling locations are now in western Pune. For one,buyers have the widest choice there because of the large number of projects popping up all over Hinjewadi,Wakad,Pimple Nilakh,Pimple Saudagar,Aundh and Balewadi. Secondly,this influx of projects is serving to keep prices affordable. In western Pune,average residential property rates start at around Rs 3,200 per sq ft and hover around Rs 4,000 per sq ft The most popular price tags for homes in these areas are between Rs 30-40 lakh.

Punes more central eastern side still commands premium rates because the IT parks,airport,malls and overall level of development give higher value in terms of investment. The rates in highly developed areas like Viman Nagar,Kalyani Nagar and Korageon Park range can go as high as Rs 15,000 per sq ft In developing Kharadi and upcoming Wagholi,they now range from Rs 3.800 Rs 6,000 per sq ft.

In fact,Wagholi is a good example of how yesterdays obscure locations can rise to real estate superstardom within a short time. Last year,Wagholi was still a relative non-entity,but that changed with the six-laning of Nagar Road and the arrival of some of the newest malls (like Ruias Market City and Rahejas In Orbit) in the area.

When viewed against residential,nobody is pouring champagne over the complete return of Punes commercial real estate segment yet. Like the rest of the country,Punes office space sector awaits the return of greater stability on the global economic front. Over the last one year,only some of the larger multinational companies have started expanding once again.

DEMAND FROM IT

Most of the real estate deals currently come from local corporates,but the IT sector is also dusting off its keyboards and getting into the act once more. Obviously,Pune has not lost its flavour as one of the hottest outsourcing destinations in the country; we are currently in discussions with two biggies who are looking for some rather impressive seating capacities,but Id rather not jinx those deals by talking about them now. Theres money in the system,too quite a lot of it,going by the manner in which our Capital Markets departments activity has stepped up over the last six months. A healthy number of Private Equity funds are hopping on the Pune real estate bandwagon once again,eager to be part of its success story via joint ventures and buying pre-leased property.

All said and done,a quick look at the crystal ball tells me that Pune will continue to rock in residential and retail real estate. The city is seeing a bigger influx of new residents from cities like Nasik,Sholapur and Kolhapur with every passing year. With the strengthening of the IT sector,commercial real estate will firm up before too long and,as I already stated,Im really bullish about Punes retail sector.

Prices will move up both in residential and commercial real estate,because supply is going to decrease. This is because quite a few developers had delayed construction during the all-too-recent slowdown,and will therefore not be able to deliver their projects in time for rates to remain where they are now.

The author is Head (Pune) Jones Lang LeSalle India