Mumbai: Several Mumbai home builders have shifted their sights to building and leasing out office space to tap the rising demand for commercial property as the residential market remains crippled after demonetization.
The growth in the commercial leased office business and the potential for listing a REIT (real estate investment trust) has made commercial real estate attractive for many developers.
Premium residential developers, including Rustomjee Group, Kanakia Spaces Realty Ltd and Sunteck Realty Ltd, are chalking out plans to ramp up their commercial lease portfolios. At present, more than 80% of their revenue comes from residential projects and townships. Mumbai-based Lodha Developers Pvt Ltd, the country’s largest real estate developer by sales, is already on its way to developing a significant commercial leased asset business after building a large residential portfolio in the city.
Several developers including Rustomjee Group and Kanakia Spaces are bidding for land parcels of GVK Skycity, a 20 million sq. ft commercial project near Mumbai’s Chhatrapati Shivaji International Airport, according to two people closely involved with the development.
Rustomjee Group’s chairman and managing director Boman Irani confirmed that the company has bid for one of the five land parcels at GVK Skycity, apart from eyeing other opportunities in the city. A spokesperson for Kanakia Spaces declined to comment on the bidding.
“We have largely done residential projects and towards the future, what we are planning to do is we will create some amount of office space in all the larger layouts that we are currently doing," said Irani.
At present, commercial properties account for 10% of Rustomjee Group’s total real estate portfolio. The company plans to increase this to 15-20% in the coming years.
“We build about three to four lakh sq. ft a year in terms of commercial space, now we are planning to increase to 8-10 lakh sq. ft a year. And this will now be mainly for office leased purposes," Irani said. So far, the company has been largely building properties for healthcare and educational institutions on the commercial side.
Kanakia Spaces is also looking to ramp up its commercial real estate business, with plans to increasingly pursue a leased model in future rather than outright sales, said a person closely involved with the development, on condition of anonymity. At present, the company has two completed commercial properties and an ongoing one in the city.
Premium and luxury residential developer Sunteck Realty is also looking at building a larger portfolio of commercial rental assets, particularly in the Goregaon suburb of Mumbai where demand for office space has surged in the recent past.
Kamal Khetan, chairman of Sunteck Realty, said the company’s commercial property strategy will be a mix of sale and lease to ensure an optimum cash flow. At present, around 15-20% of the company’s total revenue comes from the commercial business. It plans to significantly increase the share from its office leased business, he said.
“Given the fairly muted demand prevailing in residential segment, home sales are likely to pick up pace in the later part of the year, once the effect of demonetization dissipates. Developers are considering entering commercial space, especially in greenfield opportunities, as commercial segment has witnessed a steady demand owing to strong business confidence," said Gautam Saraf, managing director (Mumbai region), Cushman & Wakefield, a property consultant. In 2016, net absorption closed at 34 million sq. ft. In Mumbai, demand saw an uptick of 4% at 3.3 million sqft, led by the Thane-Belapur region, he added.
On 8 February, Mint reported that Lodha Developers is planning to build around 9 million sq. ft of office space, 1 million sq. ft of retail space and a warehousing and logistics park in Mumbai on 150 acres with an investment of nearly Rs2,500 crore in the next five years.