The Commercial Real-estate on Upswing
Considering the vigorous demand for Grade-A offices, a lucrative opportunity presents itself to corporate developers for business. Kamal Khetan, Chairman and Managing Director, Sunteck Realty elaborates.
Major international corporates are expanding their businesses in India leading to enormous growth in Indian commercial real estate. There also has been prominent surge in commercial realty due to strong policy impetus by the Government and increase in funding from institutional investors. Also, opening of REITs is expected to further push asset maintenance and greater liquidity for developers.
The Demand & Supply
The commercial realty market has been showing positive signs in terms of demand from banking and financial service industry (BFSI), Consulting, IT & Tech, Manufacturing, Logistics, Pharma and MNCs. Also, the infusion of more Private Equity money into real-estate along with the concept of start-ups and digital India will drive the commercial market.Due to limited availability of ready to move in grade A office spaces, commercial space in key micro markets of leading cities will always have good demand and will be least impacted by economic downturns.
Changing Market Dynamics
India is at the cusp of a co-working revolution. In the age of millennials who believe in the shared economy concept, office space has come a long way since it was conceptualized as a place of work, with ungainly desks and chairs comprising the set up. With newer business avenues opening up, office space design continues to evolve covering not only the structural facet but also aspects such as recreation facilities and digitalization of the office.
Even though sectors such as IT, E-Commerce and BFSI, have been major growth demand drivers for commercial real estate segment, they have recently been cutting down on their costs to bring in efficiency and hence there would be a sharp decrease in demand going forward from these sectors. Owing to higher addition of commercial spaces in Bengaluru, Hyderabad and Pune, which are high demand markets, the lease for commercial properties may not appreciate the way they have historically.
Commercial space owners would find it difficult to keep their properties occupied since there is higher supply addition in the commercial real-estate segment. Except for the immediate absorption due to deferred leasing from the previous year, absorption rate would be slow until the corporate and manufacturing sectors experience some tailwinds.
The Growth Drivers
We anticipate the commercial real estate segment to see inflow of investments as REIT will be implemented. As a new trend, IT companies who used to build/buy spaces of their own have now shifted to leasing spaces for offices. This is an industry-wide change and as the global business for IT companies improve, they may going forward lease more spaces to ramp up operations.
Despite the emergence of newer sectors like e-commerce, logistics, manufacturing etc. it is expected that the IT & ITeS sector along with BFSI backend operations will continue to occupy a significant share in the overall office spaces pie.Approximately 40 million sqft of new space will be added each year from 2017-19.
With the introduction of REITs, the market will see higher liquidity in commercial assets and rentals look healthy. Rentals are likely to raise faster in low vacancy markets of Pune, Bengaluru, Hyderabad and sub-markets like Suburbs of Mumbai, NH8 of NCR and SBDs of Chennai in a range of 6-8 per cent year-on-year. The tier II cities which are showing momentum in the absorption of spaces, should build more to meet the growing demand.
Mumbai Metropolitan Region (MMR) is one of the most well-connected suburbs with close proximity to the Mumbai International Airport. Following are the emerging micro markets for office realty
– Goregaon in western suburbs has corporate hubs like Nirlon, Nesco, Infinity IT Park and Mind space. Sunteck Realty’s upcoming commercial ODC Goregaon (W) has a scope of 2-2.5 million sqft of commercial space. The western suburbs’ micro-market has also registered the highest growth in rentals at 2.1 per cent
– Bandra Kurla Complex is the new central business district of Mumbai. Because of easy accessibility to all parts of Mumbai BKC is one of the fastest growing location commercial realty
– Andheri Easthas metamorphosed into a major commercial destination and is one of the the densest micro market in Mumbai. The area is well connected to the western express highway facilitating access to other commercial hubs like Bandra Kurla Complex, Lower Parel and eastern suburbs like Ghatkopar, Vikhroli.