The investment activity in commercial real estate is also expected to heighten over the next couple of years with the government streamlining taxation and other issues related to real estate investment trusts (REITs).
“Commercial real estate is certainly in positive zone now,” said Anshuman Magazine, chairman of property consultancy CBRE South Asia.”Continuation of last year’s growth momentum is expected this year as well. If things improve, we may even surpass the last year’s performance as there’s always a spillover effect. But, even if we match the performance, it will be a phenomenal growth. More developers have been increasing their focus on commercial segment.”
Magazine said the only thing to watch out for is the supply as that will keep rentals in check, which is good for the sector and the overall business environment.
Office vacancy rates across seven markets–Mumbai, Delhi-National Capital Region, Bengaluru, Pune, Chennai, Hyderabad and Kolkata–declined to 14% at the end of March quarter from 26% a year ago. Such promising outlook is prompting developers to invest more to ensure that they are prepared and able to tap the demand at the right time.
Mumbai-based K Raheja Corp is planning to develop two new IT parks in Mumbai and Pune with total 6 million sq ft space. The developer is expected to invest around Rs. 2,000 crore to execute these projects by 2019.
“Growth in demand from occupiers is unprecedented; our entire 20 million sq ft portfolio is completely leased,” said Vinod Rohira, MD-REITs & commercial real estate at K Raheja Corp. ” Additionally , we are receiving pre-commitments in under-construction projects to build and deliver offices. As a strategy , we have been focusing on micro markets, and in all of these markets, factors for occupiers’ business growth are strong,” he said, while referring to the company’s decision to increase its portfolio by onethird of the current size.
Developers are also finding the cur rent scenario the right time to enhance their share of revenues from the commercial segment.
“We are looking to focus on commercial over the next two years as we want to increase the share of commercial to 35% from 15% now in the overall business,” said M R Jaishankar, chairman at Brigade Group. “Right now we have 80% business focused on residential segment. We are planning to launch 810 million sq ft of commercial projects over the next two years. We have already tied up for the land and will launch 6 million sq ft of office space in FY17.”
In Delhi-NCR too, the development and investment cycle is picking up pace.”We are adding the new 2 million sq ft building near Cyber City to provide growth for our existing client base and also to secure new business opportunities,” said Amit Grover, national director-offices business at DLF .
DLF’s Cyber City office district, with 450 clients, has around 98% occupancy .But the company is building more to cater to rising demand. According to Grover, several companies are looking for quality spaces and many want to upgrade to grade A buildings. “The needs of occupiers are changing towards more ecosystem-based buildings, they are relocating to areas with good infrastructure,” Grover said.
Singaporean IT park specialist Ascendas-Singbridge is developing around 8 million sq ft IT SEZ on the Golf Course Extension Road, while IREO is building around 12 million sq ft IT SEZ in the same area.
In contrast to the residential segment, where projects are lying unsold and demand remains weak, supply of quality office space is less than the rising demand from companies or occupiers. Developers are looking to buy land parcels or enter into an alliance to develop new information technology parks and special economic zones, which is in sharp contrast to slower launches of residential projects.
Bengaluru-based RMZ and Nitesh Estates are also eyeing bigger pie of the commercial real estate. “We have already tied up four land parcel to launch commercial properties and are firming up plans for the same,” said Nitesh Shetty , chairman of Nitesh Estates. “The company has a five-year platform deal with Goldman Sachs to invest `. 1,600 crore in income generating assets, with 30% of the portfolio money invested into buying retail assets while the rest is for commercial assets acquisition.”
Commercial real estate saw a turnaround in 2015 after being in a sluggish mode for over three years. The performance was the highest since 2011, following sustained easing of rentals owing to the global financial crisis.
Credits ET Realty