Commercial realty makes a comeback
With companies on the lookout for properties that offer more room, amenities and ease of travel for its staff, commercial space is set to witness a big revival
When Mohali- based Inderpreet Singh, 39, CEO and founder of Chadha Realtors, is not selling commercial and residential inventory of some of the best-known builders such as DLF, MGM, Pearls, Ansals and Wave Infratech in the Tricity (Chandigarh, Panchkula and Mohali), his time goes into spending hours on the computer and in libraries for his doctor- ate thesis on 'Life Cycle of Real Estate' which he is pursuing from Punjabi University, Patiala.
An MBA degree-holder from the same university, Singh, who after leaving a banking career of 14 years, set up his own company in 2005 that now has a turnover of Rs 200 crore, thinks this is the best time to invest in commercial property as prices have hit "rock bottom". "Not only is this a great time to buy property for end-users but also those looking for long- term gains. The prices will not go down further," predicts Singh, who has a database of more than 1,300 people who regularly invest with him.
There are few business segments that mirror the economy's growth as precisely as the commercial real estate segment. When economic growth fell to sub-5 per cent levels in the last few years of UPA rule, commercial realty too felt the pinch. Now, with the economy showing signs of revival, with GDP growth projected to accelerate to 7.4 per cent in the current fiscal, demand in the office realty space is seeing an upswing. The quarter ended March 2015 witnessed net absorption of office space rise by 35 per cent to 7.9 million sq ft (msf) across the top eight cities of the country over the corresponding period last year, says a report by realty consultant Cushman & Wakefield.
India needs around 35 msf of office space every year as more companies look out for properties that offer larger spaces, amenities and ease of travel for its staff. "The growth in commercial realty is deeply connected with corporate growth and sentiments," says Rajeev Bairathi, executive director, Capital Markets & North, Knight Frank India. Much of the demand for office space at present comes from e-commerce companies that are growing at a rapid pace, followed by IT and IT- enabled services (ITeS) firms, and the financial sector. While the overall vacancies in office spaces were 10 to 15 per cent in major markets, Bengaluru, the e-commerce start-up hub, beat the trend and had the lowest proportion of vacancies, around 8 per cent.
MUMBAI
Back in Business
Mumbai, the traditional hub of commercial activity, saw the lowest point in commercial realty in 2013- 14, but since then, the sentiment has improved. "With decreasing stocks and rising rentals, we have moved to a more balanced market from a previously occupier-favouring trend," says Ramesh Nair, international director, JLL India, a realty consultant. The rising demand has meant that there is very limited stock of Grade A or premium buildings with high-quality finishing and state-of-the-art
systems. According to Nair, the current inventory in Mumbai can be broken into two parts. The Island City comprising South Mumbai, Lower Parel and Worli has a low vacancy of around 5-6 msf. For North Mumbai, vacancy levels are higher, at nearly 20 per cent. The recent improvement in east-to-west connectivity and the eastern freeway will lead to commercial development along the periphery of these new roads, provided large quality land parcels are available for development.
BENGALURU
Cruising on Companies
Bengaluru offers relatively significant returns in real estate, explaining the investors' interest in the market. The influx of MNCs and the start-up boom has led to the surge in commercial realty. The city witnessed strong office space leasing activity in FY 2014-2015. About 10 msf of space was occupied during this period, a 40 per cent increase year-on-year. The key tenants who leased space were Accenture, L&T Engineering, British Telecom, Wipro, Mercedes-Benz Research and Development, KPMG and Flipkart, according to JLL India. "Leasing activity remained upbeat, particularly along the Outer Ring Road followed by other micro markets such as Whitefield and North Outer Ring Road," notes Juggy Marwaha, mana- ging director-south, JLL India. About 8 per cent of space remained vacant against a total stock of about 85 msf, even as rent increased by 5-10 per cent year-on-year during FY 2014-2015.
Some of the leading players in Bengaluru- Embassy, RMZ, Prestige, Assetz, Bagmane and Divyasree-have lined up expansion projects. "We see demand accelerating this financial year because of the relatively low cost base and high quality talent pool driving demand from domestic and international companies," says Ben Salmon, co-founder and CEO, Assetz Property Group.
CHENNAI
Periphery Needs to Pick Up
With its ambitious metro rail project expected to be launched anytime now, Chennai is becoming an- other hub of real estate activity. Developers say there has been significant absorption of commercial space in Chennai. "We are currently depleting stocks of Grade A space and it is imperative to create an environment for developers to create further Grade A commercial space stocks," says N. Nandakumar, former president of Credai (Confederation of Real Estate Developers' Associations of India)-Chennai, who runs Devinarayan Housing. High street commercial space is in great demand for MNCs dealing with fashion, food and beverages and lifestyle-related outlets. Although the IT/ITeS activities took a toll after the slowdown, fresh demand has arisen for developing custom-built spaces. While there is a spurt in the absorption of commercial activity in the central business district and downtown areas, organised commercial/retail real estate development is not happening in the peripheral areas due to the lack of infrastructure and multi-mode connectivity.
KOCHI
Ready to Grow
When you drive through Kochi, you will see buildings towering into the sky but these high-rises, called Silicon Gate or Bay Arcade or Belair, are mostly residential properties. The big players, for the better part of the last decade, have been more interested in selling flats than in renting out commercial spaces.
According to Ashutosh Limaye, head of research at JLL India, "Kochi has a fairly small but active office market. Its Grade A commercial office stock amounts to about 5 msf, of which the bulk is from IT and ITeS." Things are slowly changing, with the Kerala information technology policy of 2012 making it clear that the government will facilitate and incentivise private initiatives to set up IT parks. Players such as the Bengaluru-based Brigade Enterprises are entering the market-it will build a World Trade Centre with a workspace of 770,000 sq ft in Infopark. Lalu Isaac, its resident manager, says, "The scene is quite sluggish in Kochi but Infopark presented us with a good opportunity."
When the Kochi Metro begins operations next year, the growth promises to be much better. Says M.V. Antony, chairman and managing director of Kerala-based construction company Kunnel, "There was a slump between 2008 and 2012. But things are changing now." Kochi's rise, although delayed, will no longer be denied.
CHANDIGARH
Rise of a Regional Hub
Insisting that the ongoing slump in the real estate market is going to see a turnaround as soon as the international airport in Mohali becomes operational, developers stress that connectivity is the key. Already major telecom giants such as Airtel, Idea and Tata have opened regional offices here catering to Haryana, Punjab and Himachal Pradesh. Companies such as Reliance Communications and Schindler have bought thousands of square feet of land in Mohali. Once such companies become fully operational, prices of residential and commercial properties in the vicinity are bound to go up. Builders are selling built-up property of sizes ranging between 15,000 and 20,000 sq ft in Tricity riding on demand from start-ups and new enterprises; a number of IT companies are also coming in.
HYDERABAD
The 'IT' Factor
Commercial realty in Hyderabad is looking up particularly in the last six months, with announcements of more IT players, including Google and D.E. Shaw, expanding their base in the city and developers such as Salarpuria and Meenakshi striking mega rental deals.
Prices are competitive in prime areas such as Banjara Hills, Jubilee Hills, Madhapur, Gachibowli and other places in west Hyderabad. Amazon has closed a deal for acquiring 300,000 sq ft of space near Shamshabad; Flipkart has gone in for around 250,000 sq ft for its back-end operations at Medchal in north Hyderabad; and Swedish retailer Ikea has announced an investment of Rs 500 crore in the city.
"Hyderabad is a very strong market because of the presence of the IT and service industry though systems are still evolving to meet the challenges of increasing population, business activity and rising aspirations. With the government focusing on devel-opment along the Outer Ring Road and other growth nodes along the routes of the Hyderabad Metro Rail, there will be newer opportunities," says Anand Reddy, executive director, PBEL Property Development (India).
LUCKNOW
Development Dividend
Developmental work picking up in the past couple of years has made Lucknow one of the fastest growing cities in the country. The Metro Rail project is taking shape, an IT city is being developed on Sultanpur road, 12 km from the city headquarters, and construction work of the Agra-Lucknow Expressway is underway. Gomti Nagar, Alambagh, Hazratganj and Chowk areas in the city have emerged as the centres of commercial activity with major real estate companies such as Omex, Ansal, Eldeco and Shalimar spearheading the expansion. However, the high stamp duty in Uttar Pradesh is coming in the way of commercial realty development, says S.K. Garg, chairman of Eldeco Group and president of Credai's UP chapter.
Is commercial property a better investment option? "It depends on the investor, her financial clout and risk appetite," says Arvind Jain, MD of Pride Group. Investment in commercial property involves amuch higher financial outlay than residential. But the mood is upbeat. By end-2015, office space absorption is expected to grow 15 per cent, says Sanjay Dutt, executive managing director, South Asia, Cushman & Wake-field. "Based on this, we expect total net absorption to be between 36-37 msf at the end of 2015, majority of the demand coming from the IT/ITeS and the BFSI (banking, financial services and insurance) sector in the key markets of Bengaluru, Delhi-National Capital Region and Mumbai." That is a silver lining in an otherwise cloudy realty scene.
with Sukant Deepak, Ashish Misra, Kavitha Muralidharan, Aravind Gowda, Charmy Harikrishnan and Amarnath K. Menon
Follow the writer on Twitter @MGArun1
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