Noida Commercial Real Estate: An Opportunity for Investors

The recent reports released by JLL India and Knight Frank indicate that commercial real estate has grown in India in the year 2016 at a very steady rate. The report also shows an upward growth in PE investments in the real estate sector. Overall, the commercial real estate is out of the dark and promises a bright future ahead.

There have been many ingredients to this growth recipe. Steady lease rentals, high absorption levels, inadequate supply and global investor interest are some of them. However, one phenomenon which has scripted this turnaround of commercial real estate in last 2-3 years is the inclusion of global standards as a practice by Indian developers. With improved economy and political stability post the year 2013, investors around the world turned towards India. The growth story of logistics and e-commerce along with IT and ITes further filliped the demand. The result was an excessive demand for commercial spaces with global standards. Unlike the fragmented residential market, a few leading developers grabbed this opportunity and focused are building Grade-A office space in key cities. As per JLL India, around 38.4 million sq. ft of Grade A space is expected to be built in 2016, of which around 33 million sq. ft is likely to be taken up on the lease.

The multinational companies who are present in India as well as those who have recently entered to Indian markets prefer Grade-A properties; Noida is slowly gaining the limelight when such Grade-A commercial properties are concerned. Talking about the largest office leasing deals concluded In India in last few quarters, three out of ten happened in Noida. Tata Consultancy Services leased around 400,000 sq. ft. of office space in Okaya Tower at Sector 62, Noida. Vivo Mobile, the Chinese multinational technology company, leased around 250,000 sq. ft. of office space in World Trade Center at Greater Noida. Oppo Electronics Corporation leased around 160,000 sq. ft. of office space in ASF Synergy at Sector 63, Noida.

Noida enjoys a strategic location and acts as connect for Delhi with its immediate southeast markets. Cities like Agra, Mathura, Aligarh, Meerut, Jhansi, Kanpur, Lucknow etc. are connected with Delhi and Punjab through Noida. With Yamuna Expressway being operational, Noida has further strengthened its position as the commercial hub of Delhi NCR.

There is an increasing demand in the commercial real estate segment. With improved transparency, implementation of RERA, proposed GST, and many other global developments, the demand is expected to grow further. On the contrary, the supply to match this increasing demand is inadequate. It is, therefore, a perfect time to invest in commercial real estate. The segment has started rising; this growth is there to continue for many years.  

Indian commercial real estate 2016 vs.2017

India, popularly known for her never ending population and pollution, slapdash politics, democracy and diversity, is emerging as a hotspot for both manufacturing and investment. Our country has risen as a perfect business spot in the rampant global economic turmoil.

Infrastructure and real estate are two very crucial sectors for any developing economy. Stimulated by a number of positive factors, real estate sector has seen massive growth in recent times and proposed to grow further in coming years.

It is the second-largest employment-generating sector after agriculture and has contributed 7.4% to India’s GDP in 2014-15 as per the Economic Survey of 2015-16. According to industry analysts, among other sectors, real estate services (categorized alongside financial, insurance and professional services) registered an annual growth of 9.4%, accounting for about 23% of the quarterly GDP recorded for the period.  

Real estate ownership in India is fragmentary and is divided into organized players, unorganised players and small developers. All the sectors have immensely contributed towards the development of the sector as a whole with commercial sector being the foremost driver.

Assisted by the strong government policies and reforms, commercial sector has seen an upturn in the current year. Recent announcements in the sector such as RERA and the exemption of Dividend Distribution Tax (DDT) has boosted not only investors’ sentiments but also enticed huge foreign investment into the sector.

According to industry reports, here is the quick list of changes that took place in commercial real estate sector in 2016:

•     Office space leasing surpassed the 50 million square feet (msf.) mark in 2015 in the top eight cities
• Total FDI in the construction sector, from April 2000-March 2016 stood at US$ 24.188 billion.
• During April 2000-March 2016, total cumulative inflows in the construction development sector accounted for 8.4 per cent of total inflows into the country.
• This year we all have witnessed that the sector is moving from an investor-driven to an end-user driven cycle.
• Large number of MNCs and blue-chip companies were seen purchasing office space in both ready for fit-outs and under construction buildings in top most cities for self-use and investment purposes.
• Companies such as IT and ITeS, retail, consulting and e-commerce have also seen registering high demand for office space in recent times
• Private Equity (PE) investments from foreign funds in the Indian realty market increased at a Compound Annual Growth Rate (CAGR) of 33 per cent to US$2,220 million in year ending December 2015.
• Transaction sizes have improved in 2016, and commercial projects have attracted a substantial amount of capital.
• Delhi-NCR remained the biggest office market occupiers with 88 million sqft out of 110 million sqft of land.
• The Make in India initiative has helped to accelerate leasing of commercial property by the manufacturing sector, which has outpaced the Information Technology (IT) sector by registering two-fold increase in office transacted space in the first six months of 2016.
• The introduction of 100% FDI under the automatic route has attracted large number of foreign investors in to the sector
• With the introduction of the Real Estate Regulatory Act (RERA) and Benami Transactions bill in place, the risk factor formerly associated with the sector has been reduced up to a greater limit.
• The much awaited the Goods and Services Tax (GST) is all set to be implemented and the recent demonetization move to clamp down black money hoarders from the sector has brought transparency and correction in real estate valuations

India being accounted for half of Asia’s total office leasing itself substantiates the enormous growth of the commercial sector in the country. Commercial real estate is growing significantly, providing the much-needed infrastructure for India’s growing needs. The segment is expected to witness an upswing in 2017 with leasing activity improving in the country. The recent government’s policy announcements are believed to play strategic role in coming years (2017 ahead) in removing major inconsistencies from the system. The Indian real estate market is expected to touch US$ 180 billion by 2020.

Last but not the least, with demonetization move, the sector is proposed to see transparent dealings, leading to a very strong foundation for long-term growth. The organized segment is expected to gain strength with more emphasis on cashless transactions. Real Estate Investment Trusts (REITs) are likely to maintain positive earnings growth in the coming year. Hence we can see that, the government’s incessant focus to upsurge the comfort of doing business in India by introducing investor- friendly policies will definitely going to unravel the development potential of commercial real estate sector in 2017.

Indian Commercial Real Estate Sailing high on RERA, GST and REITs

The year 2016, would be recognized as the year of many key decisions like GST (Goods and Services Tax), RERA (Real Estate Regulatory Authority), Smart City Projects, demonetization etc. and many more lying in the pipeline. Being one of the major contributors into the Gross Domestic Product (GDP) and connected to more than 25 allied industries, year 2016 had opened new windows for commercial real estate sector. Going forward in 2017 commercial realty market expects authorization of key policies and reforms that largely favors the segment.

Government’s current efforts to bring transparency in the sector have been implemented for improving the ease of doing business in this sector, as well as to boost investors’ confidence. Once implemented in the right spirit, these measures are likely to fascinate more institutional investments and FDI into the Indian commercial realty market.

Let’s look on to some of the reforms and see how they have benefited the Indian Commercial Real Estate Market:

Real Estate (Regulation and Development) Act or RERA: This act was passed in March 2016, covers both residential and commercial realty segments. RERA has the potential to bring in greater transparency, improve the bargaining power of the consumer (vis-à-vis the companies) and be a key enabler of genuine demand over the longer term. This indeed is a huge step towards solidifying the commercial real estate business in India.

According to industry experts, the Real Estate Regulation Act has boosted the sentiments in the commercial segment as the sector is expected to become much more transparent and organised which in turn will benefit all stakeholders.

Goods and Services Tax (GST): The amendment of this landmark Good and Services Tax (GST) has been India’s biggest structural reform in decades. It is expected that under the GST regime, there would be a smooth flow of credit and current restriction on construction related credits not being available for offset is likely to be removed.  This would help to reduce the project costs in the hands of the developer, and have a positive effect on rentals.

According to the industry experts, this landmark bill would reduce harassment which is there due to multiple taxes today.

Moreover, the GST regime is expected to impart greater transparency through market mechanism, it is imperative that real estate transactions forms an integral part of the proposed GST design. 

Real Estate Investment Trusts (REITs): The introduction of REITs is yet another game changing policy initiative by the Government.

According to industry experts, with huge potential in Indian commercial market REITs will facilitate investments into the country. Currently, around 229 million sq. ft of office space is REIT-compliant. Even if 50% of this space were to get listed in the next few years, experts are looking at a total REIT listing worth $18.5 billion. As India is witnessing a growth in its commercial assets, there will be more opportunities for REITs in upcoming years.

With a compelling need for additional funding mechanisms, the effort to allow REITs is yet another step towards the organised development of the sector.

The passage of GST and RERA have been one of the biggest highlights of the year that is sure to benefit the commercial sector in the long run. The commercial real estate sector has been continuously endeavouring to improve their stretched capital structure and with Govt initiatives industry has high hopes to retain its position as a bright spot in the global economy, with better growth prospects expected to support office space leasing in 2017.

Additionally, the policy announcements and reforms to recuperate the commercial real estate space, including the relaxation of Foreign Direct Investment (FDI) norms, introduction of 100 smart cities, direct and indirect tax benefits for affordable housing projects, the implementation of RERA, GST and Real Estate Investment Trusts (REITs) have helped in generating a positive outlook in the commercial segment. These reforms and policies are further expected to work towards enabling ease of doing business in the country, while supporting corporate entities entering or expanding their footprint across leading cities in India. 

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.