With commercial real estate showing signs of recovery, property developers that had stopped investing additionally in this segment are now looking to invest in office projects. The rising interest is this space has been generated by better demand outlook and constrained supply of grade A office spaces as most developers did not launch any major office projects since 2009, given the weak uptake until recently.
According to property consultancy firm Cushman & Wakefield, net office absorption in the top eight cities is expected to touch 36.5 million sq ft in 2015, which will be 18% more than last year, and 65% higher than 2013. “We will see the highest net absorption for office space this year since 2008 peak of 40 million sq ft. This has clearly attracted developers’ attention as given the current stagnation in residential market, commercial segment is offering some optimism to them.
“Eventually, the fact that more jobs are getting created will lead to increased demand for residential projects among buyers,” said Sanjay Dutt, executive MD, South Asia, Cushman & Wakefield. Developers such as RMZ Corp, Mantri Developers, Supreme Universal, Vatika Group across property markets are now looking to launch and build more commercial projects. “Mood to buy homes is somber now but when market picks up, south (India) will be the first to flip back as most white collar jobs are created here.” said Raj Menda, Corporate Chairman, RMZ Corp. Bengaluru-based RMZ is in the process of acquiring some commercial assets of BPTP and Equinox Realty to increase its portfolio. The company is also entering Mumbai, Gurgaon, Pune and Hyderabad markets by acquiring assets. It has been annually constructing 2 million sq ft of commercial property across major cities in India and expects to step it up to 3 million sq ft. Apart from looking to construct more commercial projects, developers are also building their commercial projects portfolio by acquiring ready properties.
“Given the current response for our 1.5-lakh sq ft commercial project at Baner in Pune, we are looking to launch one more commercial project spread over 5 acres there. In Mumbai, we are reviewing proposals for joint ventures for undertaking commercial projects as well as for acquiring preleased commercial properties,” said Sunny Bijlani, director, Supreme Universal. In Delhi-NCR too, Vatika Group is also increasing its focus on commercial projects, given the sluggish state of residential market. For developers, the alignment in focus is also a part of balanced business strategy.
“Hospitality has a long gestation period and is a non-viable loss making business. We will only do hotels in mixed used development, depending on demand,” said Mantri. The company has created a rental yield business under Aditya Sikri as CEO to drive commercial and retail business for the company. The company aims to now have 65% residential portfolio from 85% now.
RMZ has also converted a 5-lakh sq-ft property in Bengaluru’s Devanahalli into commercial with demand being high on this segment. In 2009, a reverse trend was observed wherein developers converted their commercial projects into residential ones. “There is a significant pick-up in commercial in the last one and a half year. Office leasing has been booked in advance with around 70-80% of the under construction properties being pre-committed in advance by Fortune 500 companies,” said Nishant Singhal, director-strategy, Investors Clinic, explaining the reversal in trend.