Infrastructure, commercial realty to benefit from budget

Approximately 16-18 km of road construction per day has been achieved by the middle of the current financial year, and budget 2016 has adopted measures to significantly step up National Highway Authority of India’s capabilities in this regard. Roads infrastructure has great influence on real estate development, particularly with the new land it opens up for development through highways and feeder routes.

The budget has outlined revival plans for non-functional airports in partnership with state governments, with a vision to spend around 100 to 150 crore on each airport to make them functional again. This will give a boost to infrastructure in many Tier-II and Tier-III cities, and is without a doubt positive for their real estate markets. A select few projects that are commercially viable with good ridership could pick up pace in the near term.

Going by the budget announcements, Central PSUs are going to be encouraged to reduce their exposure to excess land holdings. While availability of land for development is definitely a constraint and the Land Acquisition Bill is increasingly difficult to implement, an alternative route is to make use of land holdings of central PSUs. We have seen this been done in the railways budget, as well.

As far as the retail sector is concerned, the revamp of the Model Shops & Establishment Act is a welcome move and could help the retail sector considerably.

Unorganized retail could receive a fillip as smaller shops will now also be given the option of remaining open for all seven days of the week, like organized malls. While this will make the high street retail real estate proposition a bit more attractive, we will have to wait and see the implications from a labor market perspective.

Also, as more start-ups get encouraged to commence operations, we expect developers to offer more small mixed-use properties or arrangements for sharing of office space to cater to this segment.

Source: PropertyatNeoDevelopers.Wordpress.Com

Demand for office space continue to grow in 2016

According to a recent report by CBRE, demand for corporate real estate space in the top seven cities of the country saw a high annual take up of 38 million sq ft for 2016, the highest till date; this translates to an annual rise of 18 percent. This positive demand is indicative of an overall improved economic sentiment among domestic and international corporates. According to the findings of CBRE's latest report, India Office Market View for Q4 2015, absorption Grade-A office space across key cities in India witnessed a quarterly growth of approximately 26 percent during the October-December period-translating to more than 12 million sqft of leased office space.

The annual office demand was led by Bangalore with 32 percent share of the total absorption across leading cities during the year, followed by the Delhi National Capital Region (NCR) with 23 percent share. Suburban and peripheral office districts of major cities attracted steady occupier demand in Q4 2015. Prominent micro-markets included Gurgaon in Delhi NCR; Powai, Vikhroli, Kanjurmarg and ThaneNavi Mumbai in Mumbai; the Outer Ring Road (ORR) in Bangalore; the IT Corridor in Hyderabad; the Old Mahabalipuram Road stretch along Perungudi in Chennai; Viman Nagar in Pune; and Salt Lake Sector V in Kolkata.

Commenting on the findings of the report, Anshuman Magazine, chairman and managing director of CBRE, South Asia Pvt Ltd said, "India is an established outsourcing destination for various multinationals, who continue to outsource their operations to major cities in India; a key reason for a sustained spurt in office transaction activity. This coupled with a steady macro-economic climate and an overall positive market sentiment during the year, encouraged corporate office occupier demand in 2015."

IT/ITeS firms across the seven leading cities garnered a share of more than 56 percent of the entire transaction activity reported during the year. Other sectors such as banking financial services, engineering manufacturing, e-Commerce and research consulting also saw significant traction, collectively contributing about 29 percent to the total transacted space in the year.

Meanwhile, fresh supply of office space development rose to a five year high of around 45 percent during the year over the previous year. These development completions were led by Bangalore, followed by Delhi-NCR, Hyderabad and Mumbai. The fourth quarter, in particular, saw new supply addition of more than 11 million sq. ft. Most of the supply in Q4 2015 came up in Gurgaon and Noida in Delhi-NCR; ORR and Sarjapur Road in Ban galore; IT and Extended IT Corridors in Hyderabad; Baner and Hinjewadi in Pune; and Andheri (East) in Mumbai.

"Corporate occupier demand for office space is expected to continue to grow in the forthcoming months. Expansion and consolidation strategies of corporate firms will continue to be in Greenfield projects and pre-committed space in under construction projects. Occupiers will evaluate their office space requirements on the basis of infrastructure development and cost effective investment-grade office space," says Ram Chandnani, MD transactions services, CBRE South Asia Pvt Ltd.

Rental values remained largely stable across most micro-markets of leading cities during the quarter. Demand for newly completed properties, however, led to rental growth in select peripheral micro-markets. A marginal rental appreciation of around 1-5% q-o-q was reported at ORR in Bangalore; DLF Cybercity in Gurgaon; Guindy, Vadapalani and Mayor Ramnathan Chettiar Nagar in Chennai; and the IT and Extended IT Corridors in Hyderabad. Rentals were stable for the most part in the Central Business Districts of most leading cities, barring Bangalore and Pune.

Source: PropertyatNeoDevelopers.Wordpress.Com

Convergence of Retail and Office Real Estate in India

In its latest research on the Indian retail real estate sector, leading international property consultancy JLL India introduces and analyses the concept, character and status of one of most interesting new retail real estate formats - the Office-Retail Complex (ORC).

Report Snapshot:

Over the last two decades, we have seen emergence of several new business districts in tier-I cities. This trend started when the cities were expanding rapidly and their conventional Central Business Districts (CBDs) had become saturated or did not serve the needs of corporate occupiers.

Pankaj Renjhen, Managing Director - Retail Services, JLL India says, “As the work culture evolves, the need to have a robust retail presence is also felt more strongly than ever before. This has led to the emergence of a new format of retail in such office agglomerations, or Office-Retail Complexes (ORCs). As India increasingly integrates into the global economy and the number of expats living in cities like Delhi-NCR, Mumbai and Bangalore increase, a business district remains incomplete without certain retail segments.”

Today, the success of a business district not only depends on its office rentals and physical infrastructure but also on a robust social infrastructure for the time-conscious office-goer. When there is a captive consumer base for retail, how can the dynamic retail sector be far behind?

Bandra-Kurla Complex and Gurgaon have not only become the de-facto CBDs in Mumbai and NCR respectively, but they are also attracting more retail. In Bangalore, taking up space in commercial office buildings in the city center makes perfect business sense for retailers, as they not only cater to the shoppers but also make huge rental savings by opting for ORC formats over the high streets.

Going forward, the appeal of these office districts in the eyes of multinationals and premier domestic companies will be enhanced to some extent by the presence of retail.

Ever curious and agile, the retail sector is now making inroads into modern office agglomerations. Though the format of ORCs is currently a phenomenon seen only in the major tier-I cities of India, we could soon witness the concept mushrooming in other cities as well, given its relevance and the immense benefits it offers to retailers and the corporate crowd.

Among the topics covered:

1. Office-Retail Complex (ORC) - a trend in the making
2. Why retail and office real estate are converging
3. Standalone malls making way for mixed-use development

Office-Retail Complex snapshots:

Mumbai: New business districts drive the trend

F&B is the most dominant category, as it accounts for 46% of the total retail categories’ presence. Noticeably, this category has adapted to the culture that different ORCs have to offer. At BKC, expensive fine dining restaurants have made maximum inroads while at Andheri East, most F&B outlets cater to the moderately-priced fine dining categories.

Delhi-NCR: Gurgaon steals the show, followed by Noida and SBD

This geography outstrips all others in terms of size of the ORC retail format, and the tenant mix is also quite at variance. The dominant category here comprises of a heterogeneous mix of groceries, medical stores, property brokers, laundry, courier services, jewellery stores, printing services and stationary outlets. BFSI makes up for the next highest tenant presence, closely followed by F&B.

Bangalore: the only city where ORCs thrive in the CBD

The proximity to the city center is reflective in the tenant mix in ORCs in Bangalore. While generally, Fashion does not figure prominently in the retailers who occupy such formats, in Bangalore, it is visible in the Fashion category dominating. ORCs in Bangalore are a part of the shopping center of the city than creating a standalone office district. F&B follows a close second as this category has maximum traction with shoppers and office goers alike.

Source: PropertyatNeoDevelopers.Wordpress.Com

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: PropertyatNeoDevelopers.Wordpress.Com

Investors bet big on commercial property

Ashish Trivedi, 38, belongs to a family that has been investing in the country’s property markets, mostly residential, for the last 20 years. Trivedi, partner with a diamond exports firm, however, has decided to tread on a different path, and invest in a commercial property.

“Where are the returns in residential?” asks Trivedi, who has recently invested in an office space in Bandra Kurla Complex (BKC).

“I bought a 2,330 sq ft office space in One BKC about a year and a half ago, and the kind of returns and appreciation in capital values that I am seeing on my investments in this short time frame, is no where comparable to residential properties,”  he said.

Trivedi told FE that he is making 8% as the annual rental yield from the office space, which he has leased out to Hitachi for five years.

“This rental yield is almost double of what is made from residential investments,” says Trivedi.

The rental yield for commercial property is usually 8-11%, which is much higher than the yield in residential property of 2-4%, according to a JLL India report. Yield calculations are worked out by dividing the annual rental income on a property by how much it cost to buy it.

Trivedi is just one such investor from a host of investors, like smaller firms, traders, doctors, law firms, accounting firms, etc, which are increasingly investing in commercial property.

Elaborating on the changing trend, Anuj Puri, chairman and country head, JLL India observes that in a best case scenario, an investor may still make money though not at a good growth rate as the values of residential properties have already reached their peak. “In the worst-case scenario, investors may even lose money as the residential property market in many parts of the country see stagnation and declining capital values,” he says.

According to Puri, the average capital values in the Indian commercial real estate sector are still 25% lower than the most recent peaks seen in mid-2008. “Capital values in the residential sector, however, had surpassed their previous peak by end-2011. Given that commercial rental and capital values have bottomed out considerably in most major cities in India over the last couple of years, commercial real estate is now attracting a larger share of investor interest,” he says.

Investors that FE spoke with also said that large unsold inventory and high residential property prices is leaving lesser scope of making good returns from residential property investments, a big reason for them to keep hands off from investing in residential property. In contrast, India’s office space absorption during 2015 stood at 35 million sq ft, highest after 2011, while the vacancy stands at around 8-9%, according to industry estimates. In fact, CBRE’s January 2016 office market report observes that office leasing transactions in 2015 crossed 38 million sq ft for the first time ever, registering an increase of 18% y-o-y.

“Return on capital on selling a residential property maybe good, but lease rentals on an annualized basis are pathetic,” says Anil Sehgal, a 62-year-old owner of an executive research firm in BKC. Sehgal wants a regular rental income, which he says residential investments lack, which is why he has invested in a 3,000 sq ft office space in BKC.

Pravin Shah, another such investor runs a financial consultancy firm in the western suburbs in Mumbai. Shah has bought a 1,350 sq ft space in an upcoming building called Parinee I by Mumbai-based developer Parinee Group.

“There is no near term return horizon in residential investment due to high inventory,” says Shah, who is scouting for more opportunities to invest in office properties.

This increasing interest from retail investors towards commercial property is being seen after a long time, says Shishir Baijal, chairman and managing director, Knight Frank India. “I think after 2009, this is for the first time that we are seeing this kind of investor interest in commercial property. Falling vacancy rates and firming up of rents in Grade A buildings and prime office areas, coupled with increase in leasing activity is finding a lot of favor with investors looking for stable regular rental income.”

Gauging where the market is moving, developers are also offering more small office options. Ashish N Shah, chief operating officer, Radius Developers says, “Unlike residential, where returns are realized only upon exit, a commercial asset is regular income generating. At the same time there are individual firms and professionals who are looking to upgrade their offices and move out from old south Mumbai areas to BKC, which is when the idea of small offices came in.”

Mumbai-based Radius Developers, has been marketing ONE BKC as offering office spaces designed to suit occupiers of all sizes. The company has been using this as its unique selling point by offering office spaces of as small as 1,000 square feet. Parinee Group is targeting this segment of investors and small office occupiers in its upcoming property in Andheri. According to sources, the likes of Hiranandani, Wadhwa and Lodha Group are also looking to build more commercial projects, some of which will house small office spaces as well.

Source: PropertyatNeoDevelopers.Wordpress.Com

Office space in city expands by 21%

Office space absorption in the city has grown by more than 21% in 2015, compared to the previous year, says the latest office market survey put out by Colliers International, an international realty consultant.

In comparison, Mumbai saw more than 100% increase in office space absorption during the last one year. Noida 45% and Gurgaon 18% also saw significant rise. Absorption in Delhi meanwhile, plunged by 25%. Bengaluru too, which accounts for about 33% of market share, saw a slight dip in absorption, from 13.77 million sq ft in 2014 to 13.43 million sq ft last year.

Thanks to a few big ticket lease transactions concluded by technology majors and banking, financial services and insurance firms (BFSI) like Accenture, Yes Bank, Ericsson and BNP Paribas, about 5 million sq ft of office space was leased out in Chennai in 2015. In comparison, only 4.11 million sq ft commercial office space was absorbed in 2014.

Shriram Gateway SEZ in Perungalathur, India Bulls in Ambattur and Divyashree IT park and SP Infocity on and off Old Mahabalipuram Road accounted for a major share of this business. About 71% of the total absorption was contributed by IT/ ITeS firms, followed by BFSI 9%, pharma 7%, manufacturing 5%, engineering 4% and others 3%, the report said.

"About 1.5 million sq ft absorption was contributed by the top 5 deals. Vacancy rates fell on account of limited new supply in the market. As demand picks up in 2016, we expect upward pressure on rentals owing to decreasing space availability as there are very few completions happening. Also, very few projects are being started," said Amit Oberoi, head of research and national director at Colliers.

Among the micro markets, OMR with 45% of the market share remained the most preferred location. Central business districts, GST Road and Mount Poonamallee Road together accounted for about 42% of the market share and Ambattur accounted for 12%.

More than 1.8 million sq ft of office space leased out in 2015 was vacant for long. About 3.16 million sq ft of new office space was constructed last year, the report said. Much of the new supply was concentrated on OMR. About 38% of this was contributed by Chennai One SEZ.

Vacancy level in end-December 2015, was 5.8 million sq ft. About 56% of this is on OMR itself, followed by Ambattur 18%. Limited new construction and increase in absorption of space led to decrease in vacancy level from 19.5% in 2014 to 14% in 2015.

Source: PropertyatNeoDevelopers.Wordpress.Com