Rise in office deals indicates revival of Indian realty

BENGALURU | MUMBAI | NEW DELHI: Top Indian cities have seen a significant rise in large office space transactions with companies across sectors expanding and consolidation operations, kindling hopes of a revival in an otherwise lacklustre real estate industry.

India’s top six property markets reported 236 transactions for large office spaces of at least 25,000 square feet and up to over one lakh sq ft last fiscal year, commercial data information and analytics firm Propstack. This is nearly 30% higher from the number of deals registered in 2014-15. “It is apparent from the increased number of transactions that business confidence is gaining momentum.

Consequently, corporates across the spectrum are willing to look at India positively in the long term and are willing to commit to large spaces,” said Raja Seetharaman, director at Propstack. Bengaluru, the IT capital of the country, recorded the highest number of big property lease and sale deals last year with 76 transactions involving 16 million sq ft, followed by Pune with 46 deals for a total of 12 million sq ft. With the exception of Hyderabad, all big markets reported around 30% jump in the number of large deals (see graphic). “Apart from deals concluded so far, pre-commitments are also one the rise.

We expect vacancy levels to decrease further and while rentals remain stable in most markets, it could also increase in some markets,” Seetharaman said. Experts attribute the revival in demand to expansion of operations as well as several companies consolidating their operations to improve efficiency and rationalise costs. “Companies are integrating key verticals and businesses into one office to rationalise costs and increase productivity, while evaluating workplace options with better facilities and amenities,” said Sanjay Dutt, managing director, India, at realty consultants Cushman & Wakefield.

“Going forward, we will see higher number of companies pre-committing space in Grade A under-construction projects,” he said. The uptick in commercial realty space is seen as an indicator of the economy’s health and it would contribute to job creation going forward, industry insiders say. Good quality grade A buildings by reputed developers are gaining traction as many corporates, especially in the IT-ITeS space, who were in the wait-and-watch mode over the last few years, finalise office spaces through large lease transactions. “There has been a pick-up in IT and office space demand. Clients are not only taking space for relocation of their existing offices but also for expansion of their businesses, which is a positive sign for the economy,” said Shakti Nath, managing director at Noida-based developer Logix Group.

The company recently leased around 60,000 sq ft of office space to Jubilant FoodWorks Limited at Logix Techno Park in Sector 127, Noida. The company has done three to four 50,000 sq ft-plus transactions in the last one year. According to experts, apart from usual BFSI (banking, financial services and insurance) and IT/ITeS sectors, startups and e-commerce players are also contributing to office space demand in a big way. “Transaction pipeline is very healthy as enquiries for office spaces have been on the rise,” said Raj Menda corporate chairman at Bengaluru-based property developer RMZ Corp.

“We are seeing many companies scaling operations and opting for bigger spaces. Deals and enquiries have gone up not only from BFSI, but from other key sectors too,” he said. While the demand is showing healthy absorption, supply side in commercial realty is constrained as most developers did not launch any major office projects since 2009 given the weak uptake. Introduction of the Real Estate Investment Trust (REIT) regulations, which would clear the way for such realty investors, and institutional investors’ appetite for income-yielding office properties may boost investments in big projects even as momentum in office market is expected to continue improving.

According to Cushman & Wakefield, absorption is likely to gain momentum with current pre-commitment levels across eight cities seen at 11.80 msf in 2015, which would give a fillip to the trend of large deals in 2016 amidst frenzied consolidation activity in the market. Most of the pre-commitments are likely to be absorbed in 2016, with the some of them spilling over to 2017.

Credits ET Realty

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