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Property81 - Commercial real estate traction has doubled in last six months


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Property81 - Commercial real estate traction has doubled in last six months

  1. 1. Commercial real estate traction has doubled in last six months India has witnessed a slow growth on residential segment of the real estate market in the 2015. Fortunately, the market saw silver lining through deals in commercial and office space segments as more traction was seen on these fronts. On the backdrop of a pro-business government at the centre and entry of multi-national investors into the country, experts see a lot more footing in office sector in near future. Some property developers, who had stopped investing in office spaces, have started investing in office spaces due to better demand outlook in this segment and stagnation in the residential segment. According to a study conducted by Assocham-JLL, net absorption of office space in India is expected to be about 31 million sq ft by the end of 2015 as sentiment among corporate across the country is improving. The report, titled ‘Housing for All: Catalyst for development & inclusive growth’, further adds that a total of about 34 million sq ft of office space is expected to become operational in 2015 and India’s office stock is likely to settle at 440 million sq ft by end-2015. The growth in number of mega office segment deals is positive because it came even after a fair increase in prices and rentals across the country. Here are some of the mega deals of 2015 that attracted attention of real estate investors. 1) Carnival Group bought Larsen & Toubro’s Chandigarh-based mall ‘Elante’ in September. The mall, spread over 20 acres and having eight-screen multiplex, hypermarkets and departmental stores, houses a luxury hotel, and office spaces. The rental yield of the mall is over Rs 100 crore coming from retail space of around 1.5 million sq ft. 2) In the single-largest end-user commercial property deal so far, American pharma major Abbott bought over 400,000 sq ft of office space from Godrej Properties in Mumbai. This office space in the new commercial building at the Bandra-Kurla Complex was bought to house over 1500 employees of Abbott. 3) E-commerce major Flipkart signed a deal in May this year to lease two million sq ft of office space from Embassy Group in Bengaluru’s Embassy Tech Village. Flipkart agreed to lease the space for 20 years and the monthly rent is said to be about Rs 50 per sq ft. 4) leased 150,000 sq ft of office spaces at two under-construction towers from Hiranandani Group at Powai in Mumbai. The lease agreement is expected to net a monthly rent of around Rs 1.5 crore.
  2. 2. 5) Trafigura, a global commodity trading and logistics firm, signed a 10-year lease for 100,000- sq ft office space at a building by Radius Towers in the Bandra-Kurla Complex. The lease agreement is reported to have a 15 per cent annual rent increase clause. 6) In the largest single office space transaction in India in terms of area, software services exporter Tata Consultancy Services (TCS) picked up over 2 million sq ft of built-to-suit space at Hiranandani Estate in Thane on lease for 15 years. The monthly lease rental for the space, which can accommodate 30,000 employees, is said to be between Rs 50 and Rs 55 per sq ft and the annual lease rental for the property will be in the range of Rs 120 crore to Rs 130 crore. Hiranandani Constructions is expected to deliver the office space within two years of the signing of the lease agreement. The above mentioned were a prominent few deals in office space segment but there are many more commercial deals that are said to be officially executed yet. The most noteworthy of them is E- commerce portal Amazon’s 1.3 million square feet deal with Bagmane Tech Centre in Bengaluru. Financial services major Wells Fargo is also looking to lease over one million sq ft of office space to expand its back office operations in that city. Reasons for better outlook for office spaces a) Increasing number of start-ups Thousands of start-ups, especially in IT/ITeS, banking/financial and e-commerce sectors, are coming up every month in cities such as Mumbai, Bengaluru, Hyderabad, Pune etc. These firms need office spaces and secure small spaces at the beginning and expand it after getting funding from investors. b) Sign of improvement in economy Economy of the country is growing at the rapid pace. Many multi-national companies are started their operations in South Asia by opening offices in region’s most developed country, India. With a view to tap business potential in the fastest growing economy in the world, MNCs are shifting their base in India. Expected increase in India’s GDP growth is likely to accelerate leasing activity in forthcoming months. c) Pro-industry reforms by government The new government at the centre has succeeded in creating the atmosphere of confidence among domestic and foreign investors by undertaking the pro-industry reforms. Government’s focus on inclusive growth in all sectors, removal of bureaucratic hurdles, faster clearances to businesses seems promising and encouraging to large entities which were sitting on the fence until now. d) Boost from REITs Government has almost cleared the decks for entry of Real Estate Investment Trusts (REITs) in Indian realty sector. Foreign investors are likely to be allowed to buy units. This is expected to help reduce pressure on the banking system to fund the real estate sector as REITs will push fresh equity into the market. Conclusion Based on the above reason, a simple conclusion can be drawn and that is ‘good days have returned for office space segment and commercial property market in India with lots of domestic and foreign companies looking for space and many businesses in expansion mode.