India’s strata office market is valued at 2.26 lakh crore, providing an investment opportunity of around 180 mn sq ft, with the country's commercial capital Mumbai accounting for the highest leased office space, a new report has said.
Strata offices refer to multi-owned commercial buildings which are sold by developers to various owners and real estate investors.
The Mumbai Metropolitan Region (MMR) has the highest leased space with 49 mn sq ft of stock valued at Rs 88,700 crore. Legacy office spaces, demand from medium-sized firms and presence of High Net Worth Individuals (HNIs) have led to more availability of Grade-A strata space in the area.
Some sub-markets of MMR provide ready-to-lease space of 12 mn sq ft, which could offer higher returns than leased space. Since the upcoming supply is expected to be deferred in 2020, only 1.2 mn sq ft that are under construction would be available for strata investments, the report titled Private Wealth Group report ‘(re)Imagine Real Estate Investment by JLL said.
India’s existing strata office space market currently provides investment opportunities across three stages - fully leased, ready-to-occupy, and under-construction assets, according to the report.
“India has more than 600 mn sq. ft. of Grade-A office space across its top seven cities in Q1 2020, and saw record absorption, steady rentals and low vacancy levels till this period. While we’re observing a temporary pause due to the global pandemic, this space is expected to bounce back. We’re expecting to see attractive investment opportunities in India’s strata office space,” said Vishal Ahuja, Head, Private Wealth Group, JLL India.
Pune offers 17 mn sq ft of leased space office investment opportunity. Since the city has very low vacancy, investment opportunity in vacant and under-construction office space is very less, according to the report.
Hyderabad offers 15 mn sq ft leased office space investment opportunity. Since the city saw high absorption trends in the past, barring the current scenario, its under-construction supply of 4.2 mn sq ft in 2020 is expected to provide an opportunity for higher returns.
Tech-hub Bengaluru offers comparatively lower strata opportunities due to prevalence of landlord-held office assets, captive SEZs and IT parks. The city offers very less ready-to-lease and strata sale under construction options, and the investment opportunity in leased office space stands at 14.4 mn sq ft.
Chennai has 9.3 mn sq ft of leased strata space and 8.4 mn sq ft of ready-to-lease space for strata investments.
Delhi NCR has around 23 mn sq ft of strata office market worth Rs 25,450 crore. Delhi NCR offers very less leased strata space of 3.6 mn sq ft due to its large office complexes held by marquee developers. On the other hand, higher supply in peripheral zones offers 6.9 mn sq ft of ready-to-lease space. It, however, offers the highest under-construction investment opportunity with 12 mn sq ft valued at Rs 12,100 crore.
Additionally, Delhi NCR also provides more than 50 mn sq ft REIT-worthy assets with a value of around $6.5 bn.
Kolkata has 15.4 mn sq ft of ready-to-lease office space for investments. Select assets are expected to provide investment opportunity for long-term investors as the city represents the office hub of eastern India
Office space will recover fastest post-pandemic due to robust fundamentals, the report said. The number of HNIs and family offices in India has been growing at a steady pace and they continue to allocate more capital into commercial real estate investments with a focus on office, it added.
Office space investments offer stable annual cash flow and capital appreciation thereby offering attractive returns for HNIs.
“Real estate, which plays the dual role of a contributor as well as a beneficiary of growth, will prove to be the most important asset class in the HNI portfolio due to its tangible nature, stable income, steady returns and collateral value. Furthermore, the nature of investments within real estate has seen transition with higher allocation towards commercial office space assets and in publicly traded Real Estate Investment Trusts (REITs), helping investors reimagine deployment strategies,” said Manish Aggarwal, Regional MD North & East, JLL India.
“The country’s office sector has witnessed a robust growth over the last four years with the average annual net absorption crossing 30 mn sq. ft. leading to steady rentals and capital appreciation, until the onset of the pandemic. This segment is expected to recover the fastest due to robust fundamentals,” said Samantak Das, Chief Economist and Head of Research & REIS, JLL India.
JLL expects additional demand for quality warehousing space, which has driven recent activities in the e-commerce, FMCG and pharma sectors.
Delhi NCR, followed by Mumbai and Bengaluru, remained the top three cities in terms of warehousing space absorption in 2019 accounting for more than 20 mn sq. ft. of absorption.
Family offices are expected to take stock of their investments once there is more semblance of normalcy and lockdowns are lifted. Although the current situation has paused investments, those with a long-term outlook may use this period for bargain deals at attractive valuations, the report added.