Making SPACE

Normal 0 MicrosoftInternetExplorer4 st1:*{behavior:url(#ieooui) } /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} Cos are in expansion mode once again andare looking at relocating to cheaper commercial office locations. With adequatesupply expected to come up in 2009 & 10, this segment is poised for growth.Neha Dewan finds out the locationsto invest in      COMMERCIALoffice space is showing slow but steady signs of recovery. In fact, manycompanies have been shifting to alternative, cheaper locations due to the costadvantage they offer. Moreover with adequate supply expected to come up in 2009and 2010 in various cities, the commercial office market stands poised forgrowth. So which are the ideal locations to invest in commercial office spacesand which should be given a skip?     According to global real estate consultancy Cushman andWakefield (C&W), Saket in Delhi ,NH8 & Golf course road in Gurgaon, Bandra Kurla complex (BKC) in Mumbai, MG Road in Bangalore and Kondapur in Hyderabad areviable locations. But there are some considerations that need to be taken intoaccount.     Manish Aggarwal, executive director, InvestmentServices, Cushman & Wakefield (C&W) India says investment in commercialspace requires multiple considerations as the risks are greater and so are thereturns. “Purchase should be done in consultation with experienced partieswhere due diligence such as legal, demand-supply and other studies can beundertaken to minimise losses. Broadly speaking, the best spaces to invest areeither occupied or pre-leased space. Most cities have close to double digitvacancy levels and so the risks of buying unoccupied or non pre-leased spacecan be very high.”     Developers feel commercial real estate transactions,considered a key indicator of economic activity, are showing first signs ofstability after a drastic fall during the early part of this year. “Companiesthat could not afford rentals earlier in Central Business Districts (CBD) orSuburban Business Districts (SBD) of metros have now started looking for space.Deals for fresh expansions have also started which is a very positive sign,”feels Rohit Malhotra, CEO, Realtech.     The trend right now is that companies in expansion modeare looking at relocating to cheaper commercial office locations, says RajeevRai, V-P, corporate, Assotech. “In the CBD areas of major cities, where thereis no or negligible supply of fresh commercial spaces, rentals will continue torise steadily. On the other hand, in the extended/peripheral business districtsof these cities, rentals are expected to remain stable with significantupcoming supply. So investors looking for large format offices or reduction incosts, should opt for peripheral business districts.”     Mr Rai adds that office/retail space can be now boughtor rented for at least 15-20% lower value as compared to the peak values in2007-08. “Various locations in the country have seen a rental and capital valuecorrection. Since the price bottoming out process is already over, the marketis only going to improve during remaining quarters of FY10.”     Some, however, are of the view that commercial supplyand demand balancing is expected to take more time with the first quarter of2010 seeing improvements. “The demand for commercial real estate, particularlyoffice space and retail space, will start improving in 6-8 months. It isexpected that all industries will be on track in six months and this willbenefit the commercial office market as well,” says Ajay Midha, V-P,commercial, Raheja Developers. Mr Midha feels that Tier I cities and satellite townssuch as Noida,Gurgaon, Pune, and Mohali will always be the best choice for investors andcompanies.     But there have been significant advantages forcompanies not just in price negotiations but in other aspects as well. Alongwith the benefit of lower rentals, companies now have more innovativeconstruction models and schemes to choose from. Options such as Build-to-Suit,mixed-use developments and assured returns to tenants have all been doled outto woo buyers and tenants.     Build-to-suit, for instance, is being taken up bydevelopers which allows for a greater level of flexibility. It is a modelwherein properties are customised according to corporates’ needs. Developerssuch as Vipul and BPTP areoffering these new construction formats. Punit Beriwala, MD, Vipul, saysBuild-to-Suit is the mantra for commercial property sale these days. “Suchprojects are not only flexible for the occupant, as it pre-defines the sizerequirements and the overall design; it also offers a fixed return to the owneras per the final deal. The trend of mixed development is also growing in thesetimes.”     But do exercise some caution before opting for spaceonly on the basis of cost effective rentals. Aspects such as the rightdeveloper, building specifications, design formats, connectivity and physicalinfrastructure, need to be considered. Moreover, even though significant supplyis coming up in most cities, one needs to consider not just the upcoming supplybut also the existing supply, current vacancy rates in the particular micromarket, along with tenant profile and location advantage, sums up Mr Aggarwalof C&W. Courtesy: 2 rd Aug 2009  

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