ICRA: Kolkata’s commercial realty market shifts towards secondary and peripheral business districts; trend expected to continue going forward on the back of improving connectivity and considerable rental differentials

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New Delhi, June 20, 2018: Kolkata is the main commercial and financial hub of eastern India, with major industrial sectors having a presence in the region. Most of the companies present in the area have, till recently, maintained regional headquarters in the city’s central business district (CBD) in central Kolkata. However, issues pertaining to project and precinct-level infrastructure, congestion, parking and low supply of grade-A office space have resulted in an increasing preference for office space in the secondary and peripheral business districts in the greater Kolkata Metropolitan Area (KMA), with these areas turning into hubs for newer industries, like IT and ITeS. Secondary business districts (SBDs) have developed over two stretches in Kolkata: Park Circus Connector – Topsia and Rashbehari Connector – Kasba Industrial Estate. Further, with the rise in population, two peripheral business districts (PBDs) have also developed in the greater Kolkata region – Sector V, Bidhannagar (erstwhile Salt Lake City) and New Town.

Good connectivity and commutability, together with competitive rentals, facilitated the development of these SBDs, while the PBDs were established in satellite towns in order to de-congest Kolkata. Government incentives for the establishment of both commercial and residential real estate further aided the growth in those areas. Commenting on the trend, Mr. Shubham Jain, Vice President and Sector Head at ICRA Ltd, said: “Both the SBDs and the PBDs offer distinct advantages over the CBD in terms of availability of quality grade A office space with large floor plates and affordable rentals, with average rental rates for the SBDs being around 15%-25% lower than the average CBD rates and rental rates for the PBDs being around 55-65% lower than the average CBD rates.”

Both the SBDs are particularly well connected. The Park Circus Connector – Topsia SBD is strategically located, offering excellent connectivity to all regions of Kolkata, as well as to major road networks that lead to the peripheral areas of the KMA. However, the region is very mature, with relatively low vacancies, stable rentals, and limited availability of land for fresh development. Thus, going forward, growth in the supply of commercial real estate is likely to be mostly in the form of re-development. The Rashbehari Connector – Kasba Industrial Estate SBD, on the other hand, has witnessed addition of supply in recent quarters, resulting in pressure on occupancy and rentals levels in the area.

With both the PBDs of Sector V, Bidhannagar (erstwhile Salt Lake City) and New Town being developed with the intention of de-congesting Kolkata, the state government has offered a number of incentives for the development of both commercial and residential spaces in these regions. Moreover, the areas are in close proximity to both the main city, as well as the airport. Thus, occupier preference for these areas has witnessed a considerable increase. However, last-mile connectivity in New Town is weak at present, which has adversely impacted demand levels in the area to some extent.

In terms of overall infrastructure in the KMA, initiatives by the West Bengal Government to boost connectivity through metro extension and road expansion projects are expected to have a considerable positive influence on commercial real estate in the concerned areas. On the regulatory front, favourable policies such as relaxation of the urban land ceiling for certain types of developments, provision of additional FAR for reconstruction of aged buildings and for developments near metro routes (in New Town) are expected to boost real estate development. The state government has also recently notified its version of The Real Estate (Regulation and Development) Act, 2016, (RERaD) known as the West Bengal Housing Industry Regulation Act, 2017 (WBHIRA), which is likely to provide a further impetus to the real estate sector as a whole, although ICRA notes that the modification of certain key provisions in the WBHIRA may impact the ground-level effectiveness of the Act.

“Overall, ICRA expects the increased migration to secondary and peripheral business districts to continue going forward, given the state government’s focus on enhancing development and connectivity in the greater Kolkata region. The outlook for the Rashbehari Connector – Kasba Industrial Estate SBD and the Sector V, Bidhannagar PBD remain particularly positive, supported by developed infrastructure, increasing mobility and low rentals,” Mr. Jain added.

Corporate Comm India (CCI Newswire)