Coronavirus has virtually laid waste to the present quarter, as countries, including India, curtail the movement of people to contain the outbreak but prime commercial rent space in Delhi and its suburb is likely to escape the outbreak unscathed.
The "upgradation"-- realtorspeak for refurbishing with top-of-the-line facilities-- of Grade A buildings in Delhi-National Capital Region (NCR) offers Rs 1,560-crore investment opportunity in the space, says JLL in its report Futureproofing 2.0-Upgrading Commercial Assets to Create Lasting Value. An upgrade is a long-term strategic decision that would be affected by a short-term disruption.
Upgraded buildings can expect rentals to go up to 30%, it says.
“In this era of change, the biggest characteristic that defines today’s workplaces is continuous innovation. With a diverse working population spanning baby boomers to Gen Z, it is time to future-proof commercial spaces, including offices, to meet the emerging needs of a demanding workforce as well as deliver on the community’s sustainability promise,” said Ramesh Nair, CEO & Country Head, JLL.
Commercial buildings are broadly divided into three categories primarily based on location and facilities, with Grade A commanding the highest rent.
Typically, commercial buildings go for an upgrade anytime after five years, allowing them to seek higher rent.
Of the upgrading potential of over 26.4 million sq ft, markets like NH8, Udyog Vihar, Noida City and CBD Delhi represent key business districts.
Of the Rs 1,560-crore investment opportunity, Prime NH8 in Gurugram accounts for around 50 percent, says the report.
Delhi-NCR office market is seeing robust leasing activity because of high demand from traditional sectors--IT, ITeS, healthcare and manufacturing-- as well as new occupier segments such as flexible spaces.
More than 50 million sq ft of office space is slated to hit the market in the next five years, the report says.
Most of this space—95 percent -- is concentrated in the suburban markets of Gurugram and Noida. On the other hand, prime submarkets like Delhi CBD and Prime NH8, Gurugram witness lower vacancy levels as demand from certain corporate occupiers persist and there is limited upcoming Grade A office supply.
Given the scenario, upgrading of old office buildings is the most pragmatic solution, the report says.
With the expenditure for an upgrade varying across submarkets, the potential increase in rentals depends on factors such as infrastructure developments and proximity to residential areas that influence.
Delhi CBD, SBD, Prime NH8 in Gurugram and Noida City offer the maximum scope for higher rents.
“Upgradation of buildings is a long-term phenomenon and coronavirus is a short-term disruption. Buildings that need to be upgraded would be upgraded in any case,” said Samantak Das, Executive Director and Head of Research, REIS, JLL.
Upgrading takes at least one-and-a-half to three years and the payback period, too, is three to five years, he said. For both investors and landlords, an upgrade is done to get higher rentals. “Deferment of space take-up by clients by a quarter due to the coronavirus is unlikely to have any long- term impact,” Das said.
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