The Ascent of Commercial Realty Market
The overall real estate sector has witnessed a slew of progressive reforms which have set the path for increased demand for Grade A office spaces as more companies are setting up base or outsourcing functions to India. Girish Shah, Director, The Wadhwa Group explains
According to a recent report by JLL, Q1 of 2017 has shown strong leasing trends in commercial offices and IT Parks. Mumbai comes second to Delhi NCR in the office leasing space with 1.1 million square feet. Pune, Bangalore, and Mumbai have also witnessed maximum rental growth. The government has emphasized on regulatory measures and policy changes to infuse transparency in India’s realty market. This has helped to improve institutional investor confidence and facilitate the return of equity and overseas inflows. Additionally, it has encouraged domestic family business offices, high-net-worth individuals (HNIs) and NRIs to invest in the real estate market.
New Investment Avenues
REITs will allow investors to invest in Grade A office spaces and offer short and long term capital appreciation. This will provide developers with easier access to capital in the commercial sector. REITs will definitely have a positive impact on the segment and we can expect to see larger developers adopting this route in the years to come. Moreover, RERA has brought about transparency and accountability further improving investor confidence. Government’s ‘Make in India’ initiative has also brought in demand for such office spaces. The growing demand has incentivized developers to match this with adequate supply and construct top quality office spaces and Business parks.
Grade A office spaces are typically located in the Central Business Districts (CBD) of the city and see demand from some reputed names in the industry. The Wadhwa Group, was one of the first entrants in BKC and now provides office space to several MNCs, real estate, law, automobile and IT firms. The new micro markets and SBDs in Mumbai are Andheri, Borivali, and Goregaon in the western suburbs and the central suburban districts of Vashi and Navi Mumbai.
The idea of having a fixed office space has changed substantially since its inception. Co-working spaces/ new leasing models are viable for startups and SMEs as they do not seek large office spaces and it helps them save significant costs. Co-working spaces are gaining popularity in this changing commercial landscape.
The challenges & Potential
The demand from sectors such as warehousing and logistics, and FMCG showed positive signs in 2016, and the same trend is expected to continue this year. Moreover, many IT firms are now venturing into the leasing than buying. The government’s ‘Make in India’ campaign and REITs will also help investors invest in A-Grade office spaces from A-Grade developers.
The government has introduced progressive reforms in the residential and commercial realty sector in the past year. However, there are still some challenges that need to be addressed. Uncertainties in the global economy due to USA’s political scenario remain a concern. Another prevailing issue is the slowdown in the growth of GDP caused by demonetization. Moreover, in a world of technological up-gradation, companies are moving to automation and process driven work leading to a reduction in the requirement of manpower and office space. While it has affected the demand for office spaces in smaller markets, Grade A office spaces by Grade A developers in CBDs have not been impacted.
The commercial sector looks bullish. With the influx of MNCs and IT firms in India, we can expect to see increased demand for Grade A and B Office spaces which will open up new avenues for developers. The emergence of new commercial micro markets will also give a boost to infrastructure development and be a major driver for the residential segment. As far as rentals are concerned, there will be some stability in that aspect. Despite the emergence of industries such as e-commerce, logistics, etc., we can still expect to see BFSI and IT sector to hold a significant share of the office leasing space.