MUMBAI/BENGALURU: The commercial real estate market is making a comeback after being in the dumps for over three years, with recent deals and a healthy pipeline indicating early signs of recovery, especially with large transactions picking up.
For some time, big institutional investors such as Blackstone and GIC are investing in commercial properties and now apart from investors, even big corporate occupiers are returning to the market, hinting at improved business demand and the need for expansion.
Recently, Tata Consultancy ServicesBSE 0.12 % (TCS) entered into an agreement to lease over 2 million sq ft of built-to-suit space at Hiranandani Estate in Thane for 15 years, what's being billed as the largest single office space transaction in India in terms of area.
As per the terms of the deal, TCS will also hold a soft option to extend the lease by another 2 million sq ft. Another large office space deal was concluded in May when Flipkart leased a 2-million-sq-ft custom-built office campus in Bengaluru. "This year (2015) is expected to be one of the best years for office absorption in recent times propelled by steady growth in the economy and renewed corporate confidence. In the first half of 2015, increasing occupier interest for premium office spaces has led to absolute 3 per cent decline in vacancy from a year ago and the trend is expected to continue," said Sanjay Dutt, Executive MD, South Asia, Cushman & Wakefield.
Net office absorption for top 8 cities will be touching at 36.5 million sq ft by the end of 2015; this will be up 18 per cent and 65 per cent, respectively, from absorption in 2014 and 2013, respectively, according to Cushman & Wakefield.
Robust deal momentum and data points are making green shoots in office space absorption visible.
"The belief in India story is growing now and corporate occupiers are rushing to close out the pending calls, which they had kept in abeyance due to the uncertain environment," said Viral Desai, Director-office transactions, Knight Frank India.
Reviving momentum in commercial realty is an indicator of the economy's health and the ongoing uptake in commercial realty also augurs well for job creation, going ahead. Deals by both investors and occupiers indicate the sentiment is improving for office property market.
"Transaction pipeline is quite healthy as enquiries for office spaces have been on the rise. Existing tenants are renewing the contracts with expanded space and at revised higher rentals. Also, this time it's more broad based compared to earlier cycle as deals and enquiries have gone up not only from BFSI (banking, financial services and insurance), but from other key sectors too," said Navin Makhija, Managing Director, the Wadhwa Group.
Recently, Wadhwa concluded another big-ticket commercial lease deal, where one of West Asia's biggest bank National Bank of Abu Dhabi picked up two floors in Platina building in Bandra-Kurla Complex on lease for its corporate office. Mumbai's secondary business district BKC, which has long ago surpassed Nariman Point in terms of office leasing and rentals, also saw Facebook leasing around 20,000 sq ft office space for its India corporate office.