Office rentals remained stable across the major office markets in India in Q2 2021.
With demand for health and safety of employees gaining ground post-COVID-19, there is tremendous scope to upgrade around 100 million sq ft of office space and the retrofitting opportunity is worth Rs 9,000 crore across the top six cities, according to Colliers’ latest report, Revitalizing outdated buildings: A requisite to avoid redundancy.
As per Colliers, Central Business Districts (CBDs) have the highest proportion of outdated stock, accounting for 60% of the total CBD stock in the top six cities. The top six cities include Bengaluru, Chennai, NCR, Hyderabad, Mumbai and Pune.
It is estimated that landlords and developers have a scope to upgrade around 100 mn sq ft of office space in the top six cities accounting for 14% of the existing stock, the report said.
Bengaluru, Delhi-NCR and Mumbai together account for about 75% of the total stock ready for upgradation. Mumbai has the highest potential, with 28 mn sq ft of outdated stock. In the NCR, Delhi leads for upgradation in the CBD - Nehru Place and Okhla micromarkets where up to 49% of the stock is outdated, the report said.
With upgraded buildings, occupiers will be inclined towards these buildings due to the prominence of location, robust public transport, and lack of land and new supply, which will reduce vacancies, it said.
With Grade A properties accounting for only 33% of total stock in the CBDs of the top six cities, occupiers have, over the years, preferred modern buildings in fast-growing micromarkets like Outer Ring Road in Bengaluru, Off-SBD in Hyderabad, BKC in Mumbai and Cybercity in Gurugram, the report said.
Upgradation should make these offices more attractive to occupiers, leading to increased rents and lower vacancies, high tech buildings and sustainable benefits like reduction in carbon emissions. Upgraded buildings will become investible, which can be bundled into a REIT, the report said.
Developers should look at reconfiguring outdated stock by upgrading HVAC systems, electrical wiring, and external facade upgradation which can enhance the operational efficiency and increase the longevity of the buildings. A focus towards carefully chosen sustainability measures will make the buildings more environment friendly, it said
Colliers project management estimates an average retrofitting rate of Rs 900 per sq ft. The existing ageing stock holds a potential of Rs 9,000 crore for investors, the report said.
“This is an opportune time for landlords to upgrade their properties. Many occupiers are considering moving from old-generation to new-generation buildings and, more than ever before, looking at aspects like HVAC upgrades, improved indoor air quality standards and smart features. The focus is also on modern amenities which improve operational efficiency and enable collaboration,” said Ramesh Nair, Chief Executive Officer | India & Managing Director, Market Development, at Colliers India.
“Occupiers are also looking at a reduced CAPEX from their side. In this context, retrofitting buildings will revive demand by generating a renewed sense of interest among occupiers. While upgradation can involve increased costs, landlords can see the rental appreciation of up to 20%,” he said.
The report points out that with occupiers’ needs and preferences undergoing changes, it is imperative to upgrade outdated office buildings. Occupiers are increasingly exploring smart buildings with modern amenities that improve operational efficiency and enable collaboration. Moreover, COVID-19 has brought the health and safety of employees to the centre stage. As employees gradually return to the workplace, workspaces will need to meet the expectations of the new normal.
“Energy retrofitting, technology integration and design are some vital elements for retrofitting. Tech-enabled air distribution systems, innovative glass technology, double glazing to cut energy requirements are some essential aspects that landlords can look into while retrofitting. Well-being focused design elements like increased natural lighting and ventilation, and occupiers will increasingly prefer integrated outdoor spaces, said Argenio Antao, Chief Operating Officer, India.