DELHI: Commercial real estate seems to be an attractive mid-to-long-term revenue proposition for listed players despite lacklustre market sentiments and a funding crunch.
Most developers are renewing their focus on commercial properties with a clear eye on the lease revenue potential.
DLF, Parsvnath Developers and Unitech are among the realtors who see prospects in the commercial space.
Several players which had planned to sell land tracts to monetise assets are now looking at developing them as commercial projects.
DLF Executive Director-Marketing Ananta Singh Raghuvanshi noted that commercial projects are showing signs of buoyancy not just in metros but also in tier-I cities, such as Lucknow and Bhubaneswar, as there is a significant pent-up demand.
“Commercial realty is fluid and rentals in commercial projects were giving a return of 7-8 per cent annually with rents starting at Rs 75 per sq ft,” Raghuvanshi said.
Similarly, realty firm Unitech recently inked two lease deeds in the commercial real estate space, making it among the largest deals in recent times in the realty market in the North.
These include an Rs 800-crore deal with Aon Hewitt at an IT SEZ in Gurgoan and a Rs 1,000-crore deal with Accenture. The company expects to earn rental incomes over a 15-year period.
Unitech MD Sanjay Chandra said in the company’s result announcement: “Demand for office space is a good lead indicator of employment generation and residential demand in that area. We, therefore, expect the healthy growth in office space leasing in our projects to lead to an increase in demand for our residential projects in the neighbourhood.”
Parsvnath dropped its earlier plan to sell its prime land in Connaught Place, New Delhi, and instead developed a commercial project at an estimated cost of Rs 70 crore.
The company said its upcoming two commercial projects in Delhi will add to its revenue, and also help the company be debt-free by 2014-15. Its net debt stands at Rs 1,300 crore now.
Parsvnath Chairman Pradeep Jain said the development of this project will help in achieving higher sales realisation of over Rs 1,000 crore, compared with an outright sale of plot, and also lead to enhancement of the company's brand value globally.
According to RICS India Commercial Survey Q3 2013, sentiment in the Indian occupier and investment real estate markets has been hit by the economic slowdown.
Sachin Sandhir, MD, RICS South Asia, said: “From the occupier’s point of view, commercial spaces often involve more capital.
“Problems such as lower sales, cash flow crunch, expensive loans, high cost of labour and inflation have made occupiers cautious about their investments.
“Even investors — considered a good source of funds for developers — now prefer residential over commercial.”
However, in comparison with Brazil, which has also suffered a markdown in its economic outlook, the knock-on-effect on expectations for rent and capital values in India has so far been quite modest.
The survey notes that for the next 12 months, rental expectations remain more upbeat and capital valuation expectations are still positive.
It is expected that the investment scenario will improve over the course of 2014.