The rise of India’s commercial real estate market

While talks about the residential real estate sector have got people gripped, commercial property is not far behind. Thankfully, good days have returned for office real estate property in India, with lots of domestic and foreign companies looking for space and many businesses in expansion mode. Bangalore being the prime location for office spaces, many companies are purchasing apartments in Bannerghatta road Bangalore and converting them into office spaces.

• Change in government

One of the most stabilizing factors is last year’s general election and that was one of the reasons behind the upswing of the real estate. It brought with it new confidence in the country’s economic development. Though, the country witnessed uncertain times in the first quarter of 2014, and market morale was low, sentiment improved gradually following the elections. Apart from buying apartments in Bannerghatta road Bangalore, the city of Mumbai, for example, witnessed 65 per cent appreciation in average deal sizes between the second quarter of 2014 and the second quarter of 2015.

The growth of the real estate sector can also be attributed to expanding businesses, especially due to India’s emergence as an attractive offshore destination. The government’s decision to introduce incentives to attract foreign investors plays a role. Also, the availability of a large pool of highly skilled technicians and engineers, customer-friendly banks and housing finance companies, the country’s favorable demographics, and increasing purchasing power. Increasing professionalism among real estate brokers is also cited as an advantage.

• The big three cities

Major shares in the profit are gained from tier 1 cities such as Bengaluru, Mumbai, and New Delhi. These cities are technological, commercial, and political hubs respectively. According to a survey, these cities even outperformed global commercial property market when it comes to annual rental yields. The Indian office market has been maintaining a healthy traction in 2014 and has clocked office space transactions of 18 million square feet in the first six months of 2015.

It is a record year for Bengaluru, which is expected to transact office space to the tune of about 12 million square feet in 2015. The three cities have also endured the largest individual transactions in the sector, with big corporations and expansive start-ups such as Flipkart and Snapdeal picking up a lot of office space. Some of them are purchasing apartments in Bannerghatta road Bangalore and expanding them to set up their offices. And with the growth in office activity, other commercial spaces follows suit, particularly retail, as well as hospitality due to increasing demand for lodging in the trade hubs from business travelers.

• REITs on their way

The Real Estate Investment Trusts (REITs) is expected to come up with a future boost. However, due to some legal barriers, the scope of taxation proceeds from such trusts remains unresolved. Foreign investors will be allowed to buy units. It will help reduce pressure and stress on the banking system to fund the real estate sector as REITs will enable the industry to propose fresh equity by attracting long-term finance from domestic and foreign investors. The Indian REIT sector is expected to give a further push to commercial real estate and is tipped to attract investments. So far, REITs worth a total of $20 billion in assets are mainly focusing on Grade A office space and parks, logistic space and warehouses, malls and shopping centers, hotels and other commercial space.

Today, the potential of the Indian real estate sector is enormous, but there needs to be a clear solution with regards to REIT taxation. Among other trends, there's been a steady growth of the commercial sector, which is favorable for organizations.







This is a guest post by Deepak Yewle

Commercial office market shines in real estate sector

Although the residential market continues to dip, stable lease rentals, high absorption levels, worldwide investor’s interest and insufficient supply have paved the way for commercial real estate market.

Unlike the disintegrated residential sector, a few distinguished developers, with the support of investors, are building quality office spaces in the central cities.

The chief operating officer of JLL India said, “While demand for good quality office space remains high, absorption will be lower this year because there isn’t adequate supply in the market. Also, demand is high but relevant supply, which depends on location and other advantages, is restricted. We expect the sector to continue to do well.”

As per the property advisory CBRE, Bengaluru is riding high on the demand and the supply of office space and the vacancy level of its office buildings is the lowest. In Pune region, the scarcity of good supply has led to many people showing interest in Grade B buildings as well. One of the worst hit areas was the National Capital Region, grabbing only 37% of the 5 million sq. ft of office space or leasing.

Post the economic dip in 2008, many builders ceased to invest in capital-intensive projects and started showing interest in the residential market. The next few years saw many large apartment projects, resulting in a glut. The market, therefore, experienced a slowdown in the year 2012-2013.

The leading developers in building office projects are RMZ Corp, Embassy Group, Panchshil Realty and DLF Ltd. Most of these names have the support of global investors. Over 80% of the commercial office spaces are occupied by information technology (IT) and IT-enabled services (ITES) clients, the left ones are for the e-commerce firms and banking and financial services.

Panchshil Realty, backed by Blackstone group has added 5 million sq.ft of a new area in Pune for three projects. The Panchshil Reality Chairman Atul Chordia said, “We lease around 1.5 million sq. ft. office space every year, so we just have to keep building because the demand is high.”

DLF doesn’t have any residential launch this year, but the largest developer of India as per the market value plans to cover two-three million sq.ft office area in its lease/rental portfolio. The real estate giant seeks to repeat its success in developing a nearly 30 million sq. ft commercial portfolio over the past decade.

DLF has begun to work on a 2 million sq. ft office project in Gurgaon this year and is also going to cover 1 million sq.ft of the IT Park in Chennai. Chennai is seeing an investment from DLF in the commercial market, and increased investment in apartments in Chennai OMR by the House of Hiranandani.

K. Raheja Corp group based in Mumbai is also planning to spend about INR 2000 crore in purchasing land and building 6 million sq. ft of office space in the area of Navi Mumbai.

Vinod Rohira, the MD, and chief executive of commercial real estate and REIT, K Raheja Corp said,“ Growth and consolidation, particularly in the IT and ITES sectors, are driving the demand for big commercial office spaces. Demand for commercial real estate is growing at 20-22% on a year-on-year basis,”

The year 2016 is likely to observe two massive private equity investments in the commercial sector. While DLF is in the course of selling a 40% stake in its lease assets arm to get about $2 Billion, another $1 Billion investment is being invested by Brookfield Asset Management Inc. to purchase the office and reality assets of Hiranandani Developers in suburban Mumbai.

Like the developers switched focus to the residential market post the financial crisis of 2008, the commercial office projects are gaining popularity now. Some developers are rearranging their portfolios to build more office spaces.

Bijay Agarwal, MD of Salarpuria Sattva Group said, “While entry barriers are low in residential and there are too many developers, office development is not easy and as a result, we have a few serious developers building good projects,”

This is a guest post by Deepak Yewle