Boston, MA -- (SBWIRE) -- 12/25/2013 -- Rapid urbanisation, positive demographics and rising income levels means that the Indian commercial real estate sector has attracted significant investment over the past few years, however global economic slowdown and the potential easing of the US Federal Reserves' monthly bond purchase program has resulted in a temporary stalling of the real-estate market.

2013 saw GDP growth in India drop to the lowest level in over a decade, persistent structural issues ranging from the financial system to national infrastructure saw widespread capital flight in addition to record setting lows for the Indian Rupee against the dollar. Additionally, 2013 was an especially tense year for Indian-Pakistani relations, with cross-border skirmishes and reported cease-fire violations increasing in number from January-August. However, the leaders of India and Pakistan met for the first time in September a positive step towards a better relationship between the two nuclear powers.

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Despite these challenges, the commercial real estate market has thus far managed to avoid significant downturns, although demand, vacancy rates and rental stability in the short term remain a cause for concern. Nevertheless, BMI shares the consensus opinion that both economic performance and aggregate demand will improve post 2014, as investors begin to return to an Indian market which continues to display solid growth potential. Despite this we have downgraded our real growth projections for private domestic demand leading us to downgrade our headline real GDP growth forecast to 5.0% for 2013/14 from 5.5% previously.
The present Indian government has attempted to induce economic reforms in addition to a national infrastructure redevelopment in the months leading to the 2014 parliamentary election. Reductions on levels of foreign project financing, in addition to more restrictive controls on international investment by domestic firms, has helped foster the emergence of new capital in addition to relieving the pressure on a government already heavily reliant on borrowing. The lack of large-scale development in 2013, especially in the office sector, had a neutralizing effect on rents, which have marginally declined or seen no significant changes.

India's retail sector is following a similar trend being witnessed in China: a large movement of educated individuals into the middle class has increased disposable income, consumption levels, and fostered previously unseen demand for apparel, technology and grocery products, representing an upside potential for our retail real-estate forecasts. Though somewhat stagnant through 2013 due to lowered construction levels, scarce investment and consistent vacancy, India's retail sector shows enormous potential for growth in the medium-term, and could likely reach double-digit growth into 2014.

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