The sun shines bright on commercial realty - Vipul Shah, Managing Director, Parinee Group
The domain of commercial real estate in India has in current times witnessed a gamut of factors responsible for its steady growth. The latest a slew of welcome reforms that have been brought into force by the Indian government have managed to deliver the much-needed liquidity to the economy. Although the sector has witnessed a few jerks in the past, the long-standing picture still looks optimistic and the sectors signs for revival are definitely a positive one.
Commercial realty as a sector has been under pressure largely due to the government striving hard to bring in various sector specific realty regulatory reforms to safeguard more liability and transparency into the segment. Buyers and investors in modern times are favoring secure revenue streams and scouting for Grade A options. While some zones like housing and land continue to remain under pressure, commercial leasing activity has untouchably been robust and abuzz with Grade A spaces perceiving a stable upsurge in factors pertaining to rentals and valuations. With large scale modifications taking place in almost all the sectors, the business environment is also welcoming novel and significant trends. Commercial realty in the year 2017 has been robust, thanks to the demand from the manufacturing, logistics and consumer goods besides the information technology and outsourcing segments. The field of commercial real estate is presently beholding some developing trends which serve to be great prospects that businesses are acclimatizing to and using to their advantages. Some of the developing factors that are responsible for the revival of commercial real estate in India are as follows –
Increase in global capital flow into Indian commercial realty sector: India is ranked 4th in the developing Asia as far as for FDI inflows are concerned. Going by the statistics derived from various researches conducted, it has been found that Indian commercial realty has attracted about $32 billion in private equity so far. The flow of international capital into Indian commercial real estate in the year 2016 stood at about $5.7 billion. The activity of private equity in the year 2017 looks healthy thanks to a firming and revolutionising economy, and the increasing reputation earned by India as an eye-catching destination for investment. The catalysing aspects for this development were advances in structural reforms and the more liberalised foreign direct investment (FDI) regime. Factors like augmented fluidity bring in greater investments into such realty markets. It’s because of the positive alterations in its regulatory framework India is now way more attractive to both world-wide and Indian investors. Amplified consolidation and clearness - and the launch of REITs (Real Estate Investment Trusts) this year will further sharpen their desires for getting a piece of the pie from the Indian property market.
Revolution of the office sector space: REITs will appeal to established and establishing investors similarly owing to their characteristic nature to offer unvarying dividends at comparatively low risk. Small-time realty investors are particularly excited at this novel and easy investment prospect because Indian REITs will choose to capitalize in commercial space developments, precisely the uppermost quality or Grade-A properties because of the higher leasing revenues in this asset class, while only twenty percent of an Indian REIT's finances can be invested in development. The remaining eighty percent of a REIT's assets must be capitalized in an income-generating property. The REIT prospective in India is huge, with around 229 million sq. ft. of office space presently being REIT-compliant. Even if fifty percent of this space gets listed in the upcoming years, we are looking at a total REIT listing worth $18.5 billion. REIT will act as a growth catalyst, and will have a major role to play in the revival of commercial real estate in India.
The growth of co-working/shared spaces: Over the last couple of years, a large number of companies both domestic and international have rented significant space to construct and function co-working spaces across multiple cities. They have propelled small, medium and large even in some cases large occupiers to take up space with them which is largely due to the fact that they provide quick and ready space solutions to run businesses. The growth has been so prompt that co-working operators are now keen on developing at a never before seen speed. The major reason for commercial and co-working office spaces to gain traction is because of the increasing percentage of freelancing professionals and consultants in today’s globalized workforce. With great presence in almost all the Indian metros and Tier II cities, co-working spaces aid many start-up companies to procure flexible options of working at their preferred price range. Some of these spaces, allow a rent-free period along with efficacies and an also lend a look and feel resembling offices to probable start-ups. The momentum confidently seems to be backing the co-working operator and more space take up on the co-working front is predictable in the future years.
The mushrooming ORC (Office retail Complexes) growth: Another reason for commercial realty revival, is the successful progressions in the development of Office Retail Complexes. The growth of ORC is a great example that demonstrates the alteration in the mind-set of developers. ORC is designed to amalgamate well with the office crowd and is a probable business opportunity for retailers as well. Retail as an industry is an essential portion of economy, while retail developments act as epicentre for the community that is keen on leisure & shopping needs.
The approaching years will witness unremitting proficiency gains as these productive trends penetrate the domain of commercial realty. Along with making the India property market a well-organized sector, these constructive developments will also benefit start-up organizations and venture capitals that are focussed on fostering their evolution.
Vipul Shah, Managing Director, Parinee Group
@EPC World Media