Premium realtors attracted by rising demand for compact offices

Article from Livemint

Gone are the days when premium commercial buildings were meant only to house large corporates or those who wanted to rent big office spaces. Small size or compact offices are making their way into high-end office buildings because of the growing demand for such spaces from mid-sized firms and start-ups. Many of these companies want to operate out of prime commercial buildings but don’t need large spaces.

According to estimates by property consultant CBRE, transactions involving small-sized office spaces (less than 5,000 sq. ft) made up about 25% of the total office space transactions this year, compared with 19.75% last year.

With demand for such office spaces on the rise, premium real estate developers are building commercial properties with the option for smaller offices. This gives real estate companies the ability to drive volumes and generate faster cash flows.

Firms such as The Wadhwa Group, Sunteck Realty Ltd, Prestige Estates Projects Ltd, Brigade Enterprises and Radius Developers are all building compact offices with sizes up to 5,000 sq. ft, targeting investors and consumers who are mostly looking to purchase rather than rent.

“Earlier developers made small office spaces depending on specific needs and demands of a few firms. Now builders are looking at designing commercial properties in a way where they can accommodate all sorts of office units,” Viral Desai, national director (offices) at Knight Frank, a global property consultant, said.

For instance, One BKC—a 19-floor commercial office building developed by Mumbai-based Radius Developers at the city’s upcoming financial hub, Bandra Kurla Complex (BKC)—has about 108 office units of sizes less than 3,000 sq. ft. While these smaller offices accounts for just about 3% of the total built-up area of the building, almost all of them have already been sold or leased out. The property became operational in May this year.

Prices of commercial property in BKC range from Rs.20,000-Rs.35,000 a sq. ft.

Ashish N. Shah, chief operating officer of Radius Developers, said demand for smaller offices of sizes between 1,000 sq. ft and 5,000 sq. ft is increasingly from occupiers who prefer to own the asset.

“Occupying a smaller size office addresses the requirement for space with least capital exposure, especially at a prime business centre. It also enables companies with modest revenues to have their presence in central business districts,” he said.

Other developers are looking at building commercial properties which specialize in small office spaces.

Within the BKC area, developers such as The Wadhwa Group and Sunteck Realty have carved out a certain portion of their premium office buildings for occupiers looking for smaller size offices.

Of the total 25 commercial real estate transactions that have happened in BKC in the last six months, 17 involved smaller size offices, said a person familiar with the transaction on condition of anonymity.

At Wadhwa’s commercial properties such as The Capital and Trade Centre in Mumbai, 15-25% of the buildings have been designed to fit compact offices. Navin Makhija, the company’s managing director, said demand for small-size office spaces has increased by up to 25% in the last two years. Earlier, these small spaces were taken up as an investment but now more and more firms are moving in, Makhija said.

Bengaluru-based real estate firm Brigade Enterprises is currently developing two commercial projects—Signature Towers and IRV Centre, which are specifically designed to fit smaller offices of sizes starting from around 2,500 sq. ft. Prestige Estates is also adding to its portfolio of commercial properties which are suited for smaller office spaces.

“There has always been an inherent demand for small-size offices. However, after the information technology (IT) boom, most of the good quality office space was gobbled up by many IT and IT-enabled services firms which were rapidly expanding, leaving few choices for those looking for small offices,” Irfan Razack, chairman and managing director, Prestige Estates Enterprises, said.

According to property consultants and company executives, though demand for such quality spaces has risen, supply has been limited, leading to strong pricing for such spaces.

As per estimates of real estate advisory firm JLL, office space absorption in India during 2015 stood at 35 million sq. ft—the second-highest after 2011. Vacancies in premium buildings, particularly in Mumbai, New Delhi and Bengaluru, stand at around 8-9% while overall vacancies across the country are at 16%.

“Historically, developers were interested only in larger deals and leasing out with bigger firms in premium buildings as they are better managed,” Ram Chandnani, managing director, Transaction Services, at CBRE South Asia Pvt. Ltd, said. However, with lot of demand for quality office coming in from small start-ups and professionals, builders are realizing that it is an opportunity to generate faster cash, he added.

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