9.6 mn sq ft Grade A office space absorbed in Q3

Nearly 9.6 million sq ft Grade A office space was absorbed during the July-September quarter of this year, a report said.

According to a study of nine major metros by property consultant Colliers International, office absorption witnessed sustained momentum, with Grade A absorption totaling 9.6 million sq ft, making it 28.26 million sq ft so far in 2016.

“Although Q3 2016 marked a quarter-on-quarter decrease of 7.6 per cent in gross leasing volume, we expect leasing activity to pick up in the upcoming quarters,” it added.

As per the survey, southern cities dominated the office absorption pie with Bengaluru at the top (25 per cent), Hyderabad (20 per cent) and Chennai (11 per cent), followed by Gurugram (13 per cent), Mumbai and Noida (10 per cent), Pune (8 per cent), Delhi (2 per cent) and Kolkata (1 per cent).

“Vacancies are set to decline in prime commercial corridors on the back of rising demand momentum, especially in Bengaluru, Pune and Hyderabad,” Colliers International’s South Asia Director, Office and Integrated Services George McKay said.

He noted Bengaluru continues to go from strength to strength in terms of office absorption.

“This is good news for owners and developers, but is a challenge for office occupiers in many cases, as they face the prospect of higher rental rates and fewer options to choose from at least in terms of ready supply.

“Land markets in the main cities have become quite active as established and next generation developers are looking to replenish their land banks, to satisfy both existing and new client demand,” he said.

As per Colliers, the growing office demand will outstrip supply in technology sector driven markets such as Pune, Bengaluru, and Hyderabad.

“This should therefore lead to downward pressure on vacancies and an upward pressure on gross office rents in these markets. In contrast, traditional commercial markets such as Mumbai and NCR are likely to remain stable in terms of rents and vacancy due to a stable demand and supply scenario,” McKay said.

According to Surabhi Arora, Senior Associate Director, Research at Colliers International, the improving economic picture provides a favorable background for continued expansion in commercial property markets.

“Nasscom predicted 10-12 per cent annual growth in IT and technology enabled services until 2020 that should help the office market to remain strong in 2017.

“That said, a further impetus to growth should be provided by other macro-economic factors such as declining oil prices and increasing monetary easing facilitated by ongoing moderation in inflation,” she added.

Source: Realty.Economictimes.Indiatimes.Com

Investments in Gurgaon double to over $1 billion

Investors across real estate segments – residential, commercial and land – are rushing into Gurgaon which saw large sales across financing and land acquisitions in excess of $1 billion, double that of 2015.

Last year, Gurgaon market attracted around $500 million in investments as investor were in a wait-and- watch mode towards outlook and an expected recovery.

While land accounted for 42.55 of the total investment pie, followed by refinancing of residential assets at 42.1% and core assets (rented office property) at 15.3% respectively, estimates CBRE South Asia.

“Owing to its cosmopolitan status and conducive environment, Gurgaon continues to evince active interest from real estate funds, local and international developers as well as corporates. It has always been the investment gateway to NCR due to its critical mass in real estate development and existing social infrastructure,” said Gaurav Kumar, managing director of capital markets at CBRE South Asia.

Gurgaon commands a lion’s share of office leasing in the NCR region driving significant institutional interest as well as investment commitments to capture the growth wave of increasing lease rents and high sale prices.

Some of the large transaction in Gurgaon includes M3M acquiring 180 acres of land from Sahara Group for $180 mn for a residential project. Tata Realty and Infrastructure acquired a 25-acre IT SEZ zoned land parcel from M3M abutting Sector 58 near Golf Course Extension for $60mn. Additionally RMZ/QIA purchased a 730,000 sq ft IT Park from BPTP located along the Delhi-Gurgaon expressway in Udyog Vihar for $180mn.

“Gurgaon is the potential market for office spaces in north India and assumes a prominent position in RMZ acquisition strategy. We have already acquired a marquee asset from BPTP which we have christened RMZ Infinity, Gurgaon. We are exploring both greenfield and brownfield developments as a way of expanding our presence in north India, which we hope to take up to at least 5 mn sq ft over the next three years in this Gurgaon micro market of NCR.,” said Arshdeep Sethi, MD -Development of RMZ Corp.

“We foresee constraints on new office supply side in the future, opening up tremendous opportunities to capture significant market share. Even valuations in the recent couple of years, especially in residential, have been depressed. This, combined with the limited number of office players in the market, provides growth opportunities in terms of returns and market share,” he said.

Prominent funds like Piramal Fund Advisors, Xander, JP Morgan, Altico Cpaital, GIC and Blackstone have either invested or are evaluating opportunities in Gurgaon. “We will look at last mile financing for projects in advanced stages of construction and sales. We will also evaluate and fund projects wherein credible corporate houses such as Godrej have tied up, under joint development arrangements, with existing land owners and developers to market and construct projects under their corporate brands,” said Sanjay Grewal, CEO for Altico Capital.

The fund recently invested Rs 50 Cr transaction with Noida based Lotus Greens group for a residential project. It had earlier invested Rs 450 crore for a Sports City project with the builder.

The city also has couple of million dollars transactions in the pipeline with DLF’s rental portfolio of office assets alone estimated to attract over $1-1.3 billion for a 40% stake sale. Ascendas-Singbridge, a leading sustainable urban and business space solutions provider, has also recently announced an investment of $ 400 mn to develop an IT office SEZ in Gurgaon.

“Gurgaon is the focal point of economic growth in NCR and the second largest office market in India with significant investments made by large multinational corporations. With over two decades of experience in India, we will bring our best practices to ITPG and provide best-in-class business space and asset management services in Gurgaon,” said Sanjay Dutt, CEO, India Operations, Ascendas-Singbridge.

Renewed interest from institutional investors has also prompted builders such as Vatika, Tata Realty, Hines and M3M to join hands with strong institutional investors to actively acquire strategic land positions within emerging areas of Gurgaon; a clear indicator of long term dividends from such investments.

“The past few years have been challenging for residential markets with stagnant off-take levels. In such a scenario, renewed interest by institutional investors is explained by several factors including current pricing for housing being at replacement cost levels, thereby providing limited downside risks for investments. Interest rates are at their lowest in the past five years,” said CBRE’s Kumar.

Multiple Chinese developers are evaluating Gurgaon as their first market for investment. Wanda, a prominent Chinese developer acquired 500 acres from the Haryana government for a green field industrial township.

In addition to the healthy investment activity over 12-18 months, the pipeline of future investments is even stronger. Institutional investors are bullish on the long term outlook with commercial office markets in overdrive and emerging areas of Gurgaon offering excellent residential development opportunities.

Source: Economictimes.Indiatimes.Com

Office space demand sees sustained pickup across top cities

The demand for commercial real estate across the country is getting stronger and is witnessing a sustained momentum. The office space absorption across top 9 property markets has seen a sustained growth with total 28.3 million sq ft picked up during the first nine months of 2016, showed a Colliers International report.

Last year, commercial real estate in India registered a record absorption, and given the current momentum, this year is also headed in the same direction.

“The key office markets across India, especially in the south, continue to go from strength to strength in terms of office absorption, and with rents increasing significantly compared to prior years in certain micro markets. This is good news for owners and developers, but a challenge for office occupiers in many cases, as they face the prospect of higher rental rates and fewer options to choose from at least in terms of ready supply,” said George McKay, South Asia Director, Office & Integrated Services at Colliers International.

Colliers expects the leasing activity to pick up in the upcoming quarters and vacancies to decline in prime commercial corridors on the back of rising demand momentum, especially in Bengaluru, Pune and Hyderabad.

“Demand for commercial real estate has been increasing over the recent quarters as corporate entities consolidate and expand operations following a positive economic scenario. Demand for commercial real estate has been on the upswing across markets and we are experiencing it in our ongoing township projects in Panvel, Chennai and commercial tower in GIFT city near Ahmedabad,” said Niranjan Hiranandani, CMD, Hiranandani Communities.

“As I see it, business growth in India has been all about adopting global best practices, and I expect demand for commercial realty to keep growing through 2016 and 2017,” he said.

Expansion strategies by occupiers in ecommerce, healthcare and technology space are expected to increase in the overall occupancy levels. The growing office demand is expected to outstrip supply in technology sector driven markets such as Pune, Bengaluru, and Hyderabad. This should, therefore, lead to downward pressure on vacancies and an upward pressure on gross office rents in these markets, the report said. In contrast, traditional commercial markets such as Mumbai and NCR are likely to remain stable in terms of rents and vacancy due to a stable demand and supply scenario.

According to McKay of Colliers International, the demand for commercial spaces has resulted in land markets in the main cities becoming active as established and next generation developers are looking to replenish their land reserves to satisfy both existing and new client demand. During the first nine months of the year, occupier demand has focused on quality products in preferred micro markets in most of the cities, whereas startup and small-size companies showed an inclination towards serviced and co-working space.

Also, there has been an increased demand for leased out commercial assets in the market as indicated by a recent deal by Brookfield Asset Management to buy 4.5 million sq ft grade-A office and retail portfolio of Hiranandani Group in Mumbai’s Powai suburb for $1billion.

“We expect an increase in office demand beckoned by improving Business Confidence Index which showed a 5.7% increase during April-July 2016. Other factors such as controlled inflation, falling interest rates indicate strong economic fundamentals,” Colliers said.

Source: Economictimes.Indiatimes.Com

Realty sector to close year with Rs 43,600 cr worth PE transactions

Year 2016 is proving to be a bumper one for real estate and is expected to record the highest level of private equity investment in the sector since 2008. Based on the current pace of investments, Indian real estate is estimated to close the year with an inflow of Rs 43,600 crore through PE transactions.

More than half of this total – over Rs 24,500 crore – is likely to be invested in the second half of 2016, with the first half recording transactions of Rs 19,100 crore, says a report by global real estate services company Cushman & Wakefield.

Investments in office assets jumped 157% to Rs 4,236 crore in the first six months of 2016. Factors such as increased foreign investment and leasing activity, strong GDP growth and economic forecasts, improved governance and government initiatives have contributed towards attracting investments.

“Indian real estate has seen good traction from both domestic as well as global investors on the back of reviving economic confidence breaching previous levels. This bull run is expected to continue in the short term with more investments being made in completed/leased corporate assets and other commercial activities such as retail and hospitality and we expect 2016 to be one of the best years in recent past for the RE sector,” said Anshul Jain, managing director-India at Cushman & Wakefield.

PE investment into real estate jumped 64% in the first half of 2016. The number of deals concluded during the period increased to 57, up 24% from a year ago. Domestic investors accounted for 63% of the investments in office assets owing to some big deals. Foreign investors brought in 25% of the investments and the remaining 12% was made by joint ventures of domestic and foreign investors, the report said.

The residential segment commanded the largest share of 44% of the total investments made during the first half, while commercial office asset class accounted for 22%. Retail gained the most, with its share of investments increasing to 18% from 2% recorded a year ago. Hospitality and mixed-use asset classes cumulatively accounted for the remainder at 17%. Domestic investors poured in 80% of the money put into residential assets, with the remainder being made by foreign investors.

Of the major property markets, Mumbai continued to attract the highest share of investments at 36%, followed by Delhi-NCR at 33% and Bengaluru at 11%.

However, by mid-2017, there could be a scenario of suitable projects drying up, with investments committed in most properties. Some developers may hold on to projects to cash in on the advent of real estate investment trusts (RIETs) and may only release their properties to such options, Jain said. The cumulative value of stakes likely to be sold by Indian developers in the rest of 2016 is estimated at between Rs 21,500 crore and Rs 24,000 crore.

With the improving economic outlook and an uptick in leasing for office spaces, some PE firms are increasing their portfolio of such assets, possibly with the intention of launching their own REITs. The relaxation in FDI norms in food processing, defence and pharmaceuticals is expected to attract investments, which, in turn, may boost demand in the real estate sector.

All of these are progressive FDI policies and effective implementation of the announced policies in infrastructure development, land digitization, RERA (real estate regulatory authorities) implementation, title insurance and the GST will be key to further growth, the report said.

Source: Economictimes.Indiatimes.Com

Builders target office-goers, shift focus to office-retail complexes

The combination of retail and office complexes may not be entirely new to metro cities, but the trend of setting up such combined projects is fast catching on. Developers are now looking at experimenting more with a mixed-use format rather than standalone retail formats, allowing for quality retail on the lower floors and commercial spaces on the upper floors.

Even today, key portions of several office buildings in property markets are occupied by food & beverages and retail BFSI outlets. Such mixed-use retail developments have opened up a new format that will attract select categories of retailers. “Of the total retail presence in office buildings across major tier-I cities, 26% is occupied by food & beverages and a significant 23% is occupied by retail BFSI outlets.

While retailers get the dual advantage of paying lower rents compared to premium spaces in Grade A malls and closer access to their main target segment of office-goers, developers are also open to experimenting more with a mixed-use format rather than a standalone retail format,” said Anuj Puri, country head, JLL India. Such office-retail complexes (ORCs) are emerging as alternatives to high streets, and even malls, for some categories of retailers.

“It is very important to bring in an optimum mix of retail spaces, which are best suited within that setting. Essentially food, BFSI related outfits bring life into these business districts and should be planned more to optimize the commercial user and not just retail space to maximize rental revenues,” said Vinod Rohira, managing director, K Raheja Corp.

Source: CredaiNCR.Org