Indian Commercial Real Estate: Back to Business

The commercial real estate market in India has picked up and is taking over residential segment by leaps and bound. Today it serves as a more lucrative investment option with investors gaining from rental income as well as capital appreciation. 

Commercial real estate witnessed a turnaround in 2015 after being sluggish for over three years. As per Cushman & Wakefield, the overall absorption is likely to gain momentum in the year 2017. The sector had pre-commitment levels across eight cities at 11.80 msf in 2015, most of which to be absorbed this year itself. It is this supply gap that is encouraging developers to launch new projects in the commercial real estate segment.  Groups like House of Hiranandani are looking to add commercial portfolio into their business. They are eying under construction projects to take over. 

As per the recent JLL report, major residential markets in the country saw average residential property prices in the city and suburbs appreciate by only 3.3% in 2015 as against an average of 7% in 2014. This sluggish growth has pushed investors towards commercial real estate. Moreover, they are keen on Grade-A properties as these properties yield more than average appreciation of around 12-15% annually. Also, Grade-A commercial properties give 8-10% rental returns on the capital value depending upon interest rates. 

Though there are many developers who are today developing Grade-A commercial properties, the segment was primarily pioneered by DLF. With an increasing appetite for such properties, Godrej and Tata entered the space. Talking about global brands, the first entrant in India into the Grade-A commercial properties segment was World Trade Center. The WTC or the World Trade Center started its first establishment in Mumbai and later granted another license to Brigade Group of Bengaluru to develop and manage a one million Sq Ft office tower. 

In the last couple of years, investors have become more inclined towards world-class commercial spaces. One of the reasons for this shift is a constant increase in rental incomes.  According to data from property consultancy CBRE Asia, rentals in NCR area rose 13% while those in Bengaluru's Whitefield and Electronic City rose 12%. Rentals in Hyderabad's IT corridor and areas such as HITEC City, Madhapur and Gachibowli rose by 14-20% in the last one year. Markets like Chandigarh and Noida have also shown significant growth. With WTC present at both these places, they have already registered their arrival into global commercial real estate market. In Noida, the first phase of WTC is completely leased out; second phase construction is also going on. 

Apart from an increased FDI flow into the segment, the market for commercial real estate properties has started attracting HNIs as well. In Bengaluru, Prestige Constructions sold 0.5 million sq ft of commercial space to HNIs who were looking to build annuity portfolio. The year 2017 promises better period for the commercial real estate market and why not, with festive season just started, the growth rate of commercial spaces is expected to rise.

Warehouses and Logistics: The New Elements of Indian Commercial Real Estate

With the boom in India’s e-commerce industry, warehousing is one of the sectors which got a fresh lease of life. The sector which was once used only to store goods, warehouses in India now provide value-added services like consolidation and breaking up of cargo, packaging, labeling, bar coding, reverse logistics, etc. The size of the Indian warehousing industry is estimated around INR560 billion. The industry is growing at over 10% annually. 

The growth in warehousing in India is primarily being driven by the growing manufacturing activities and an emergence of organized retail in the country. The increasing foreign investment in infrastructure sector and the improving ease of doing business are further propelling the growth. Above all, the surge in online retail and e-commerce enablement activities are the icing on the cake. Warehousing forms a crucial link in the overall logistics value chain of the e-commerce industry. It accounts for almost 5% of the Indian logistics market.

With the entry of global e-commerce giants, same-day and next-day deliveries have become the standard benchmarks. This has forced companies to establish their warehouses in almost every major city in India supported by comparatively smaller distribution centers in the Tier-II cities. The logistics for e-commerce companies primarily work on the hub-and-spoke model where the large warehouses are the hubs and the distribution centers work as the spokes for a wider coverage. 

The requirement of large warehouses in Tier-I and II cities has sparked a demand in the commercial real estate segment. Realizing the potential of warehouses and their estimated impact on the real estate industry, the government of India opened 100% FDI inflow in the e-commerce sector. As per an Assocham-PwC study, the e-commerce companies are expected to invest close to $6-8 billion in logistics, infrastructure and warehousing in India in the next few years. 

Given the surge in foreign investment in warehousing and logistics in India, cities with better connectivity have started witnessing various infrastructure development activities. Cities like Noida and Greater Noida have witnessed a surge in the launch of large commercial properties. These launches are primarily concentrated to Yamuna Expressway and Tech Zone IV regions, they being better connected with the surrounding regions.
As the government of India has also cleared the passage for GST, the logistics and warehousing sector is expected to get benefited the most. Overall, the recent developments related to FDI, ease of doing business and now the GST has made the commercial real estate sector more lucrative for the investors.

Noida or Gurgaon: Let the Better Urban Planning Win

Delhi NCR has always been one of the prime real estate markets in India. The location has its own advantages. Apart from being the hub of all political activities, it is a cluster of major cities which, together house offices of almost all the major companies operating in India. Though NCR is expanded to many miles, it is primarily five cities which comprise the majority of its operations. The cities are Delhi, Noida, Gurgaon, Faridabad and Ghaziabad.

Indeed, together these cities enjoy great strengths, but what about them when compared individually! Out of all these, Gurgaon and Noida are the two important cities which have done fairly well in last one-one and half decades. Though Gurgaon had location advantages since the beginning which helped it emerge as a preferred destination for MNCs, it has started losing its charm due to lack of basic amenities. Noida, on the other hand, has picked up momentum in last few years; many MNCs have shifted their corporate base to Noida and Greater Noida due to well structured urban planning.

Urban planning is one of the very important aspects that decide the course of development of a city. It involves a technical and political process concerned with the development and use of land, protection, and use of the environment, public welfare, and the design of the urban environment, including air, water, and the infrastructure passing into and out of urban areas such as transportation, communications, and distribution networks. Overall, it is the process to design and develop the foundation of a city. The recent incident of water logging in Gurgaon where the entire city came to a standstill for more than 20 hours is the best example of poor Urban Planning.

Generally, it is the responsibility of Department of Town and Country Planning to design and develop these amenities. In Gurgaon, this responsibility, somehow, shifted to developers. Whereas, in Noida the authority develops the road, drainage, sewer and other infrastructures. Once these are done, the land is allotted to the developer.

Noida is far ahead in terms of basic infrastructure a city requires. It can safely be compared with Chandigarh, one of the best-planned cities in India. It only lacked supporting infrastructures like Metro Rail, airport and highways. Fortunately, all these developments are happening in Noida as well. The city has operation Metro Rail connectivity, three highways passing through it and a proposed international airport in Jewar, 72 Kms away from Noida.

With these infrastructures in place and better planned urban amenities, Noida and Greater Noida are giving a tough fight to Gurgaon. Unfortunately, once termed as ‘Millennium City’, Gurgaon is slowly getting buried under its own mess.

What’s so unique about GIFT City, Gujarat

In early 2015 when Mr. Modi, the Prime Minister of India, announced his ambitious project of developing 100 Smart Cities, he was criticized by many. Experts estimated that it would require around $20 billion to develop one Smart City, an amount impossible for the government to allocate. On the other hand, Mr. Modi was confident of what he was proposing. Well, he knew what a smart City means and how that can be developed! After all, he was one of the masterminds who conceptualized GIFT City in Gandhinagar, Gujarat.

Not only being the first entrant to the list of 100 Smart Cities, Gujarat International Finance Tec-City, or GIFT is also a role model for many. GIFT City was initially conceptualized as a Central Business District between Gandhinagar and Ahmedabad. It then soon got converted into International Finance Tec-City. It is being developed on 886 acres of land. It will provide high-quality physical infrastructure to its occupants. Services like 24 hours electricity, water, gas, district cooling, roads, telecoms and broadband would encourage finance and tech firms to establish their operations there. GIFT City will have a special economic zone, international education zone, integrated townships, an entertainment zone, hotels, a convention center, an international techno park, Software Technology Parks of India (STPI) units, shopping malls, stock exchanges and service units.

GIFT city will provide a new lease of life to the now quiet state capital, Gandhinagar, a 20-minute drive away. Eventually, there will be bus and metro service connecting GIFT City to Ahmedabad and Gandhinagar and will gradually become the focal point of all business activities.

World class office and retail complexes at GIFT City will help create more than one million direct and indirect jobs. The city will also have residential complexes which will allow employees to walk to work, and social infrastructures like a school, hospital, and malls. GIFT City’s administration plans central air-conditioning in all buildings, filtered tap water and municipal waste collection system. These facilities would make GIFT City far more advanced than existing Indian cities.

The Indian Government, its Prime Minister, in particular, is very optimistic about this city. It has roped in state-run banks and global financial institutions to fund the project. The first phase of the planned city is expected to get completed by the end of the year 2016. Once fully operational, GIFT City will redefine the meaning of ‘Urban’ and will surely encourage many more cities.

Integrated Business Parks: The Future of Commercial Realty

Commercial realty in India has defied the much cried ‘slowdown’ and has started showing momentum. Thanks to some of the supportive policy reforms by the union government, investors from across the world have intended to invest in India. Many multinational companies are already present here and are planning to expand their businesses. The boom in eCommerce and approval of 100 per cent FDI has unlocked many more opportunities for the commercial realty to leapfrog the growth. Cities like Noida and Gurgaon in Delhi NCR, Chandigarh, Bengaluru, Hyderabad, GIFT City in Gujarat and Mumbai have become the commercial property hot-spots. This boom has also created a need for business parks which are self-sufficient and offer all the facilities a businessman would require on his trip. It has given the birth to concept of Integrated Business Parks.
 

Integrated Business Parks are amalgamation of small business units together with retail and world class hospitality facilities. Some of the amenities include retail space with global standards, office space, meeting rooms and serviced apartments with global standards for facility management services. The various commercial projects by Hines Group worldwide like CityCenterDC in Washington DC, 609 Main in Texas are the best example of Integrated Business Parks. World Trade Center has also established its name in this category and has created its own members family and support them to expand their operations globally.
 

In India too, such business parks are being developed by renowned developers. They are tying up with global brands for facility management and offer their customers best in class services. As an investor, one should look to invest in such properties for following reasons. 
 

Need of the Hour
With business environments exploring global opportunities, it becomes necessary to follow the global standards as well. Such business parks offer an ease of doing business and make your global guests as comfortable as anything. Employees too, feel proud working in such offices, thereby restrict attrition.
 

Avail facilities without owning
The integrated business parks offer facilities like high-class meeting rooms, conveyance facilities for global guests, serviced apartments and recreational facilities all in one campus. One just needs to book a unit there and avail all these facilities on a marginal rate.
 

The Smart City Concept
Integrated Business Parks are usually run on smart energy with Eco-friendly management system all around. They run on solar energy, have waste management in place, treat their waste water to recycle etc. Therefore, they best suit the concept of smart cities that the government is developing.  
 

Ease of Doing Business Globally
These business parks are maintained and run by global consultancies having properties in other countries as well. They form a global family and offer business facilities to their members in other countries as well on a marginal rate. This makes doing business easy and expands the reach to many countries instantly.