Well-funded firms with a strong multinational client or tenant base are eyeing assets in Mumbai, NCR and Pune
Many office firms are exploring the joint development route by tying up with landowners and developers
At a time when most residential firms are shrinking their markets of operations, top office developers in Bengaluru, mostly backed by large global investors, are doing just the opposite. They are pulling out all the stops to build a multi-city portfolio of projects.
These developers, which are well-funded and have a strong multinational client or tenant base, are eyeing new places such as Mumbai, National Capital Region (NCR) and Pune—outside their core markets in southern India.
The Embassy Group, backed by Blackstone Group LP, is set to buy around 39% stake of promoters in Mumbai’s Indiabulls Real Estate Ltd (IBREL) for ₹2,700 crore. One of the largest deals of 2019, it gives Embassy control of IBREL’s assets in Mumbai and NCR and an entry into these markets where it also plans to acquire more assets.
Similarly, Embassy Office Parks—a partnership between Embassy and Blackstone—launched India’s first real estate investment trust (REIT), housing 33 million sq. ft of office and hospitality assets. The REIT issue was launched in March and raised ₹4,750 crore.
“Leading corporate occupiers are often present in multiple cities across India. The top tier developers/owners have been responding to this customer-driven demand and planning a pan-India presence," said Mike Holland, CEO of Embassy Office Parks REIT. “The real estate market has also been maturing, resulting in fewer, larger developers, many of whom have access to international investment capital. Such global investors will always have an eye on any perceived concentration risk, preferring diversity, and prefer to see large-scale investment potential in order to justify investment returns." Embassy REIT has the capability to acquire new office assets worth $1.5-2 billion without diluting more equity.
Prestige Group, present in many southern cities, is set to launch its first residential project in Mumbai. But it plans to predominantly build an office portfolio in both Mumbai and NCR. “There is good demand for office space in these markets and the number of developers is limited. We are in discussions to sign up projects in Gurgaon and Mumbai," said CEO Venkat K. Narayana. “The plan is to enter one location and do multiple projects, and be a developer who can cater to local needs."
Many of these developers don’t plan to buy expensive land. Instead, they are exploring the joint development route by tying up with landowners and developers that are seeking partners.
Juggy Marwaha, executive managing director at property advisory JLL India, said Bengaluru-based developers have proved their execution capability over the years and know how to deal with multinational tenants. “These developers have displayed financial discipline in building large office portfolios and most of them are backed by strong investors, who want them to de-risk and expand beyond their core geographies. This is the right time to do that," added Marwaha.
Knight Frank India’s half-yearly report, India Real Estate, in July said the office space market experienced a decade-high volume in supply and transactions between January and June.
Office supply increased by 31% year-on-year to 23.9 million sq. ft during the period, the highest this decade.
DivyaSree Developers, along with Kotak Realty Fund, has launched the $400 million India Office Assets Fund I, anchored by a unit of sovereign wealth fund Abu Dhabi Investment Authority, to develop and acquire commercial office assets across India.
DivyaSree managing director Bhaskar Raju said that after gathering 15 years of experience in building an office portfolio in the south, they decided to venture into other cities. “We aim to serve 15% of the annual (office space) absorption capacity in cities like Mumbai, Pune and NCR and if we are building a portfolio, which will ultimately go for a REIT, then there needs to be across geographies," Raju said.
In June, Bengaluru’s RMZ Corp. signed an agreement with DB Realty to redevelop Kamalistan Studio in suburban Mumbai into a large office park and is in talks to acquire more projects in the financial capital. It is also close to signing a large deal in Gurugram for another office project.
RMZ co-chairman Raj Menda said the firm is entering Pune, apart from actively building projects in Hyderabad and other southern cities.