Bangalore: India’s commercial office space sector may be seeing a revival after a prolonged slump, with several real estate firms planning expansions and launching projects, although analysts remain sceptical.
Bangalore-based RMZ Corp., after it built and sold around 1.2 million sq. ft of office space in 2012, plans to build 1.8 million sq. ft this year.
RMZ, primarily a developer of office space, announced in 2011 plans to also build residences as the home segment wasn’t as blunted by the economic downturn and was seeing better sales. The company is returning to its core office space business after successful sales last year.
Over the next four years, RMZ will develop around 6 million sq. ft of office space and buy another 5 million sq. ft of such properties, managing director Raj Menda said.
Panchshil Realty recently made a three-week-long pre-launch offer for its World Trade Center project in Pune. “Investor intent is very high and we sold almost 3.5 lakh sq. ft in one building in 21 days, which is fantastic,” said executive director Sagar Chordia.
And Godrej Properties Ltd earlier this month launched an office project at the Bandra-Kurla Complex in Mumbai, from which it expects revenues of Rs.3,500-5,000 crore.
“We have concluded some sales and are in active discussions for many more. We are seeing interest primarily from corporate end-users,” managing director and chief executive Pirojsha Godrej said in an email reply.
The project, a joint venture with Jet Airways (India) Ltd, is expected to be completed by 2015.
The global economic slump of 2008-09 depressed demand for both residential and office properties in India. But while home sales gradually picked up, sales and leasing of office spaces remained muted as companies struggling through a still weak economy curbed expansions plans.
Property consultants say it will be at least a year before India’s office space sector fully revives and rental values, that have hit a bottom, resurrect.
Over-supply of office space remains a big problem for the sector, said Ravi Ahuja, executive director at property advisory Cushman and Wakefield. Of the 55 million sq. ft of office space that was available in 2012 across seven large cities, only 28-29 million sq. ft got sold or leased, he said.
Prices of office properties in some areas are already rising, if only marginally, indicating some improvement in demand.
Consultancy Jones Lang LaSalle (JLL), in its Real Estate Monitor note for March, says that although office rents remained stable in Bangalore, capital values increased marginally. In Delhi, both rents and capital values remained stable except in the central business district where they increased marginally; in Mumbai, rents and prices were unchanged, except for a marginal growth in Navi Mumbai.
Ashutosh Limaye, head of research and real estate intelligence service at JLL India, said that while there is high interest for stabilized office assets that have been leased for at least three years, there is little interest for under-construction and future projects.
Still, developers across cities are planning more launches this year.
Bijay Agarwal, chairman of Sattva Group, which has a huge office project portfolio in Bangalore, said there is substantial interest in such commercial properties from both wealthy individual and institutional investors.
“We are seeing a lot of demand for large format spaces from large corporate and not so much from smaller companies,” said Agarwal. The company is in talks to buy land to build space for technology companies and is set to launch 2-3 projects shortly.
Mumbai-based Lodha Developers Ltd’s chief marketing officer R. Karthik also said there’s greater interest in office projects this year than in 2012.
“We are seeing a reasonable amount of upswing and interest. Some of our office projects are also coming up in the vicinity of our residential projects, which will also encourage the ‘walk to work’ concept,” said Karthik.
Lodha, which build and sells office spaces under different brands, has a number of office project launches planned in the coming months.
Large private equity firms including Blackstone Group Lp and Morgan Stanley Real Estate Investing too are scouting for deals in India’s office space sector, possibly at lower valuations.
More funds will adopt a conservative cash flow-driven investment approach and focus on investing in income producing office assets, with an accent on asset repositioning, refinancing and refurbishment, JLL said in its note.
Jitendra Virwani, chairman and managing director, Embassy Property Developments Pvt. Ltd, which also has a joint venture Pune Dynasty Projects Pvt. Ltd with Blackstone Group LP, said though leasing of office spaces is still slow, momentum is growing in buying out such commercial assets.
Embassy plans to launch a 200-acre information technology park at Bellary Road in Bangalore later this year. The company is also close to finalizing a deal along with Blackstone and HDFC Property Fund to buy Vrindavan TechVillage, a special economic zone in Bangalore, for Rs.1,951 crore.