In the past, the return on investment (ROI) on housing assets was quite satisfactory and, in some cases, even spectacular, depending on the choice in terms of location, configuration, amenities, and builder’s brand.

office space 2

While rental yields for residential assets in India have historically been low, capital appreciation alone was a sufficiently dynamic prospect for most real estate investors.

However, the hype around residential property investment has fizzled out over the last 2-3 years, with a prolonged slowdown severely affecting capital appreciation.

“As of now, investors with the financial wherewithal and understanding of the commercial real estate space find office assets far more attractive, and for good reason. In the first place, office properties in the right location and project can yield very good rental returns over prolonged periods, and the capital appreciation can also be considerable for the right office assets.

office space

“Demand for office assets, for which there is a ever increasing requirement due to rapid employment generation and the possibility of the first REIT listings, is therefore quite high among investors,” Anuj Puri, chairman of ANAROCK Property Consultants, said.

In fact, office properties in well-located Grade A buildings, IT parks, and even in logistics centres are generating the kind of steady and dependable ROI that investors previously sought in the residential asset class.

“The commercial office space saw a bracing upsurge of private equity inflows in 2017, and this trend is likely to continue throughout 2018. With the first listings likely to happen in Indian REITs this year, we will see further infusions of liquidity into the commercial property asset class, and this will go a long way in amplifying the ability and willingness of developers focused on the commercial office segment to deploy more assets,” Puri says.

Meanwhile, the continuing sluggishness on the residential property market, coupled with the associated re-investment cycle risks, will also play a significant role in driving more investments towards various categories of commercial real estate.

Whatever be the case, the fact is that demand for the office space is growing faster than the demand for residential space in current times.

Vineet Taing, president of Vatika Business Centre, says: “After RERA and GST came into force, the residential market saw a slowdown with limited new launches and tepid sales. However, the commercial realty has remained robust with sustained demand. There is an increasing demand for office spaces which has led to the growth of business centres, virtual offices, as well as co-working spaces. In the Delhi NCR, the New Gurugram region and Dwarka Expressway are set to get a boost both in terms of office spaces as well as retail.”

Developers say that sales of commercial properties like shops, malls, and offices and storage facilities have grown in recent years – one reason being higher rental returns.

“The rental returns in the commercial real estate are higher than those in the residential sector, especially in places like the NCR, which is inviting more and more investors in this sector. The Indian commercial real estate is also attracting realty players from all over the world. This has increased competition in this sector, as a result of which buyers are getting the best,” Ravish Kapoor, director of Elan Group, said.

Pushpender Singh, managing director of JMS Buildtech, says: “From the investment perspective also, commercial space is currently a better option than residential. In India, the rental yields in the commercial real estate – which hover in the range of 8-10% currently – are one of the highest. Residential sector is giving yields of 3-4% only. We can safely say that with the rise of India as an ideal business destination, the commercial realty space will remain an attractive option for investors.”

Source :


Office space take up witnesses 46% on-quarter rise in April-June

Office space absorption across key cities of India stood at 10.2 million sq ft during April-June quarter, registering around 46% on-quarter growth. The rise in absorption was led by (NCR) and Bangalore, which accounted for almost 50% of the total space take-up, said property consultancy CBRE in a report.

On the supply front, nearly 7 million sq. ft. of fresh office space came into the market during this period. Hyderabad and Mumbai together led supply addition, accounting for more than 65% of the total supply of fresh office space across leading cities during the quarter.

Over 17 million sq ft of corporate real estate was absorbed across the leading cities in the first half of 2016, translating to a marginal year-on-year rise of 6%, said CBRE’s report, India Office MarketView.

“Despite a muted global economy, India continues to be a favored outsourcing destination for corporate firms. Recent policy announcements by the Government and a stable domestic economy are all expected to attract investments into the country’s real estate sector and enable the ease of doing business here,” Anshuman Magazine, CMD, CBRE South Asia.

IT/ITeS continued to be the largest demand driver for office space, recording over 50% of the total leasing activity recorded in the quarter. This was followed by engineering and manufacturing firms and the BFSI sector. The e-commerce segment also saw a slight uptick in office space take-up of about 5% over 4% witnessed in January-March quarter. This was mainly led by Hyderabad, Delhi NCR and Bangalore.

“The markets of NCR, Mumbai and Bangalore continue to lead the demand for corporate office space. Similar to the trend in previous quarters, occupier focus is likely to be concentrated towards prime micro-markets of leading cities. However, we are also starting to see a push towards the supply-laden peripheral locations of these cities. The main reason for this is the availability of cost-effective, investment-grade office space with large floor plates,” said Ram Chandnani, MD – Advisory and Transaction Services, CBRE South Asia.

According to him, the interest in these areas is expected to further increase due to upcoming infrastructure. Space utilization and innovative workplace strategies will play a large role in the expansion plans for occupiers.

Suburban and peripheral office districts of major cities also attracted steady occupier demand in this quarter. Prominent micro-markets that dominated leasing activity across cities during the quarter were Whitefield and Electronic City in Bangalore; Sohna Road and DLF Cyber City in Gurgaon; CBD (Anna Salai, T Nagar, RK Salai, Alwarpet and Nungambakkam), OMR Zone 1 and Mount Ponnamalle Road in Chennai; IT Corridor in Hyderabad and Thane and Navi Mumbai.

Except for Delhi NCR, Mumbai and Hyderabad, the Central Business Districts (CBDs) of Bangalore, Chennai and Pune saw a rental rise of about 2-6% from a quarter ago. On the other hand, Kolkata CBD witnessed a 4-6% q-o-q rise in rentals.

With limited SEZ supply expected in the market, this segment also saw a q-o-q rental increase of 2-12% across Chennai, Pune, Hyderabad and Kolkata. The same trend was reflected in IT (rental increase of 2-5%) and non-IT (rental increment of 3-9%) developments across office markets in Gurgaon, Pune, Hyderabad, Bangalore and Chennai.

Source: CredaiNCR.Org

Retail sector can be a game-changer for the real estate industry

With the Union Budget 2016 setting the tone for the year ahead, the realty sector is optimistic that the reforms and announcements introduced will bear positive results and the sector will finally trudge along in the fourth gear. The biggest take away from the previous year was the performance of the commercial sector, which brought cheer for the real estate market. Hence, experts are hoping that the golden period of the commercial sector will continue this year as well.

The commercial real estate market comprises of office, retail and industrial segments. As we know, the IT/ITeS sector is a major occupier of office space in India and the government is taking significant measures to promote growth of the manufacturing sector as well. But the retail industry is not lagging far behind and can contribute towards this endeavor. Evolving consumer spending patterns and increasing disposable income levels, are redefining the country’s retail landscape. The market has become very dynamic in nature, with the industry stalwarts not only exploring new micro-markets but also reinventing themselves to keep up with the pace of growth in the sector.

Mapping the growth tale:
According to Sunil Shroff, CEO, Viviana Mall, three have defined the key factors that have defined the growth story of the retail sector in the last five years are the growing young population; a significant rise in the working population and an increase in the income and purchasing power. “The retail industry has also benefited due to liberalization in the FDI policy, which in turn, has attracted international and global premium brands, thereby boosting the retail sector,” Shroff adds.

Experts are optimistic and feel India’s retail market is expected to grow manifold in the next five years and with the right support from the government, modern retail will move up the growth curve.

The modern retail market size in the MMR is also expected to grow at a CAGR of 23 percent, according to a report, ‘Think India. Think Retail 2016’, launched by Knight Frank India in association with Retailers Association of India (RAI).

“With the simultaneous growth in quality real estate and infrastructure, the Indian retail sector can prove to be a game-changer if developed in a planned manner, thus making it more competitive and organized,” says Rubi Arya, executive vice-chairman, Milestone Capital Advisors Limited.

Trial and Error:
However, all has not been hunky-dory for the retail sector. Another significant highlight of the report was as of December 2015, the MMR had 33 operational malls and almost an equal number of malls have also shut down over the last two years. “The growth rate today however has stabilized and the malls, which have been doing consistently well for the last few years, continue to attract more footfalls with new brands tapping into the market,” points out Nirzar Jain, vice-president, Oberoi Mall. However, has this trend impacted the realty market adjoining the malls? Experts feel that property prices depend on numerous parameters like basic infrastructure, connectivity to the local transport spots, other social requirements, etc. The presence of malls and other retail zones is an added advantage to the buyer but there is no direct impact on property prices, except maybe rentals from such units, which will be higher.

The Indian retail sector has been undergoing structural changes for the last two decades and one of its significant achievements has been the robust growth in the e-tail sector. When the retail wave hit our country, the brick-and mortar sector had taken a backseat.Traditional retailers have repositioned.

Looking Ahead:
A strong public infrastructure is the backbone of the retail industry. Hence, it is imperative that the retail sector is developed in line with the infrastructural development, in order to ensure equilibrium, especially in the urban areas. “I personally feel that the government should promote integrated townships in a big city like Mumbai.

Spanning hundreds of acres, this master plan will include independent houses, apartments, offices, shopping malls, cinemas, schools, hospitals and all other facilities that will make life easy for Mumbaikars,“ says Gulam Zia, executive director advisory, retail and hospitality, Knight Frank India. While the housing sector alone contributes approximately 5 to 6 percent to the country’s GDP, the other sub-sectors like commercial, hospitality sector, retail and others have also grown in parallel. The need of the hour is to develop each industry in a planned manner and themselves today. The price differentiator was the major point of contention between the online retailers and conventional retailers and over the years, we have tried to bring it down. Besides, the focus today is on customer satisfaction and creating an experiential market. The instant gratification of leaving a store with a purchase in-hand is unmatched and hence, the attempt is in order to achieve just that,” says Anand Sundaram, CEO, Pioneer Property Zone.

Experts feel that it is imperative to note that in an economy consisting of over 400 million internet users, four out of five consumers have never shopped online; hence, the availability of traditional outlets is a must.

“However, the e-tailing business has a direct impact on the commercial real estate space, due to large commercial offices and warehouses being leased rapidly across tier-I and II towns. Mumbai is looking towards a commercial leasing boom as more and more e-tailing businesses (products, payment gateways and logistics), are forming the bulk of such demand,” points out Arya.

Source: CredaiNCR.Org

Commercial Real Estate – Guidelines For Retail Investors

Buying an office or retail space is a huge investment, which is why commercial real estate has been traditionally seen as an asset class that only institutional investors or heavyweight HNIs could invest in. That, however, is changing. Many retail investors are now getting into the office real estate game.

For a perspective of the opportunities in Indian commercial real estate, consider this – Manhattan in New York City has 450 million square feet of Grade A stock, while London has 200 million square feet. In comparison, India’s collective office space stock accounts for only 375 million square feet. This showcases the long-term potential for office space at all levels in India.

Very few of the world’s commercial real estate markets have undergone such a dramatic and rapid change in such a short span of time as India’s has. The next few years will see a quantum spurt in the services and knowledge sector, opening up tremendous opportunities for the retail investor.

Investment Routes:

There are three ways to invest in commercial real estate – directly buy office space from a developer, buy shares of a commercial developer from the stock market, or invest in a real estate fund focused on commercial real estate. As the quantum of investment is usually huge, the prospective buyer needs to take more informed decisions.

Another option, which is investing in Real Estate Investment Trusts, is expected to be opened up shortly by the government. REITs are pooled investment entities where the corpus is invested primarily in completed, income yielding real estate assets and distribute a major part of the revenue/income generated among their investors.

Many developers, especially in cities such as Mumbai, are today offering smaller units of space (as small as 500-1000 square feet) in Grade A buildings. This is in sharp contrast to the scenario a few years back, where only much larger units were available – making it tough for a small investor to invest in office real estate. Investors considering retail space can now consider a multitude of affordable options in free-standing high street outlets or shops in malls.

The advantages of smaller units are two-fold:

It is  easier to find tenants for them.

The premises can also be used for business by their owners if they happen to be of an entrepreneurial bent of mind.

Today, even professionals like doctors, auditors, stock brokers and lawyers are buying commercial properties for investment and self-use. Of course, HNIs also continue to plug huge amounts of money into high-ticket commercial properties in the quest for yield.

Private bankers and wealth management firms confirm that their clients have actively started investing in commercial properties after staying away in 2009 and 2010. These investors have bought into commercial properties because they seek assets that can protect their portfolios from inflation and stock market volatility. On their side, banks are willing to lend up to 50-60% of the LTV to buy commercial properties, subject to the borrower’s adequate net worth and established ability to repay.

What to look for?:

Despite the availability of more rationally priced options, investing in commercial real estate is most definitely not child’s play. It requires forethought, research and planning:

Investors need to establish the soundness of the location and its demand/supply dynamics. If they do not engage in sufficient research, they may end up buying into micro markets which have or will have high vacancies.

They need to ensure that the economy, job market and population growth in the market is healthy.

They need to check the developer credentials, potential for infrastructure development, access to public transport and quality of property management in the project.

They need a knowledgeable real estate agent and a lawyer who can give them sound advice.

If they are investing in a retail store, they need to consider the frontage, foot-fall and the dynamics of the adjoining catchment.

Entrepreneurs who wish to buy commercial real estate for self use should ensure that the amenities in the project that match their business needs.

If an investor is looking at an income producing office asset, he should look at:

The break-up of cash flows.

The vacancy factor.

Expenses such as maintenance, property tax and building insurance.

Lease term, lock-in period and expiry dates.

Long term capital appreciation potential.

Refurbishment, refinancing and re-positioning potential.

Why Invest?:

The rental yield for commercial property is usually 9-11%. In contrast, the yield for residential property is much lower at 2-3.5%. The demand for office space in India is likely to stand at around 200 million square feet over the next five years. Post the GFC, the prices across most markets dropped around 35-40% and have bottomed out in most markets, offering investors a good opportunity to buy into commercial real estate.

India’s macroeconomic growth story makes for a rather compelling reason to get one’s own paragraph into it somewhere. Chosen prudently, and office real estate can let you do that in indelible ink. Last year, the demand for office space across India was 26 million square feet and this year is expected to see demand of 28 million square feet. The possibility of diversifying one’s portfolio, the sheer pride of ownership and the benefits of the longer leases that typify commercial tenants are other reasons to look at commercial real estate investing.

Remember, you do not only make a profit on the sale of appreciated commercial property – the rental cash flows of a well-located office or shop space are considerable. Unlike in residential property, the income that can be generated from commercial property is what determines its value. In other words, the capitalization rate is actually the measure of the demand for the property. For those who do their homework well, investing in commercial property is a high-adrenaline and high-returns game that residential real estate investment cannot hold a candle to.

Source: Jllapsites.Com

Four things to know about budding ‘Green Office’ realty

Residential and commercial property developers are now increasingly being prevailed upon to evolve and incorporate green features.

Make no mistake:
Environmentally sustainable real estate is extremely important for India today. Given the massive demands on infrastructure, energy, potable water and waste handling and disposal, there are no other options for the real estate sector but to go green. Given that low cost housing is bound to see a huge growth in the next two decades and more than 60% of India’s infrastructure yet to be built, residential and commercial property developers are now increasingly being prevailed upon to evolve and incorporate green features.

India not a slow adopter:
The common perception is that India was generally a late adopter of the ‘green’ mantra in real estate. However, the country has not lagged behind on this front at all. In fact, the growth of green real estate in India is a saga of some compelling and impressive statistics. According to the Indian Green Building Council (IGBC), green real estate in India has grown from a mere 20,000 square feet in 2003 to a little over 3.0 billion square feet of registered, pre-certified and certified projects in 2015. Of this, green office spaces account for 200 million square feet, primarily in the 10 major cities.

Contrary to common belief, Indian developers are not ‘going green’ merely because more and more MNCs will now consider moving only into certified green office spaces in India. The demand for green office spaces is equally high among Indian corporates; some of the top Indian MNCs have now included green office spaces in their corporate sustainability objectives.

This indicates that India is far from a reluctant adopter of green real estate practices. In many cases, the requirements laid out by the Ministry of Environment, Forest and Climate Change (MOEF) for projects over 20,000 square meters has helped the cause of green commercial real estate, as well.

Today, a large number of IT / ITES companies and BFSI firms have an explicit ‘green’ mandate when it comes to leasing commercial spaces. Bank of America Continuum, Citibank, UBS, Inautix and Intuit (among others) are some of the firms that are firmly committed to occupy sustainable office spaces. IGBC, which works under the aegis of the CII spearheaded the initial awareness drive, and the members of CII were the first to imbibe green concepts in their CII Sohrabji Green Business Centre in Hyderabad.

The green rationale:
There is more to the green office realty movement than goals related to carbon footprint, CSR and enhanced corporate image. The improved indoor air quality, better ambience, natural lighting and comfort cooling control in sustainable office spaces have been proven to improve employee productivity and wellness. A typical 100,000 square foot green office building saves the occupier Rs. 30 to 40 lakh in a year on energy alone. Savings in water could be close to half this amount. In comparison to conventional office spaces, green offices are 20-30% more efficient on the use of water and energy. Of course, there are added costs to green office spaces, as well. Office rental benchmarking studies in the 7 major cities have revealed a typical premium of 2-3%.

A large number of developers have now recognized the importance of building green because it improves the lease probability in a market that is currently witnessing parity between supply and demand. Simply put, corporates that are committed to green office spaces prefer leases in buildings whose core and shell is certified green – and such corporates are on the increase.

Common features:
The features typically found in green offices include space design and fittings which enhance energy and water efficiency while simultaneously providing occupants with higher levels of comfort, ventilation and glare free illumination.

The building envelope is designed to minimize heat gain via higher window/wall ratios.

Building facades use high-performance glazing systems to reflect exterior radiant heat outward.

Energy consumption via efficient lighting and high-grade heating, ventilation, and air conditioning (HVAC) systems and integration of sub systems, controls and Building management systems.

Source: ETRealty.Com