February 8, 2023
Anurag Goel, Director, Goel Ganga Developments

As Offices are Reopening, Investing in commercial assets might be a lucrative deal

Read Time:2 Minute, 42 Second

Authored by Anurag Goel, Director, Goel Ganga Developments

Indian offices are reopening once again, with leasing activities picking up in most of the cities. This has also pushed the demand for office spaces in central business districts, secondary business districts, peripheral areas, etc. As per the latest Colliers report, around 30-35% of the leasing activities are run by IT & ITeS enterprises. Close to 10-12% are run by consulting houses. Around 15% of the demand is driven by co-working spaces, while the other major demand contributors include healthcare, e-commerce, FMCG, manufacturing etc.

As per the Colliers report, in Q1 2022, the total office leasing in major Indian cities amounted to 13 million Sq. Ft, which is highest over the past 8 quarters. Alongside small and medium deals, large office leases (> 1,00,000 Sq Ft.) have also increased significantly. Most of the major IT companies such as Google, Amazon, Veritas, Microsoft, ABB, etc. have recently closed big office deals in India, thereby further giving a positive push to the commercial real estate in India.

As the sector is once again recovering, investment activities are also gaining steam. This is a marked difference from the past two years when in the face of the crisis, investors started shying away from the sector. During the crisis, when most of the individuals were working homebound, interest in office assets plummeted and there was visible inclination in residential assets, as it was perceived to be low risk.

Nevertheless, the trends are altering and there is once again renewed investor interest towards commercial assets.

Pivot to the co-working spaces

In the commercial space, the co-working segment is emerging as an attractive segment that is luring investor interest due to their heightened demand in the new normal. As per the latest report by JLL research, the segment is growing annually at 35%.

The co-working or the shared office segment is gradually moving from the periphery to the core, with demand no more limited to start-ups, smaller businesses, and freelancers. Increasingly large enterprises are also pivoting to shared spaces as they offer affordable, flexible, and scalable lease terms. Consequently, there is growing investor interest in the flexible space segment, as it can offer stable income streams. Investing in such assets can give annual yield in the range of 8-10%.

Jump in strata sales

In tandem with other leading Asian markets such as Singapore and Hong Kong, the concept of strata sales is also registering a jump in demand. While investing in a commercial space is generally a big ticket deal, strata sales have largely simplified the process. Now with a bandwidth of INR 10-30 lacs, one can playout in the commercial segment. Commercial developers are also promoting the idea and many of them are giving 25-40% of their projects for strata sales.

Besides investors, small and mid-sized businesses are also investing and owning such spaces. Investing in an office is a prudent decision for many businesses as it can help them to streamline their overall operational expense. Moreover, by acquiring a strata office in city centres can enable businesses to get a foothold in high-end location and greatly boost their overall branding.

 

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