Since the Indian investment policy for the real estate sector has got a thumbs up from the foreign investors the country has regained favour as a preferred investment destination in the Asia Pacific region.
According to the Emerging Trends in Real Estate Asia Pacific 2018 report Mumbai, Bengaluru, and New Delhi ranked 12, 15 and 20 by survey respondents as top investment cities. The report was jointly published by PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI).
Globally Sydney, Melbourne, Singapore, Shanghai and Ho Chi Minh City were the top investment cities.
The report also said that due to the implementation of GST and last year’s demonetisation liquidity issued have been created for real estate and it has also impacted investment and development prospects of the cities, thereby pulling down their rankings.
Mumbai has been ranked 12th after being on the second spot last year, while it ranked 8th in terms of development prospects. Bengaluru and New Delhi stand at 15th and 20th position respectively in the investment destination ranking against 1 and 13 respectively in the last year. They ranked 16th and 18th positions respectively on the development destination ranking.
According to the report Mumbai has benefitted from the recent strength of India’s capital markets. Absorption has therefore been strong, driven by demand in co-working, manufacturing, and services companies. Retail is another sector that is drawing increasing foreign investment interest.
Although steadily declining, Mumbai’s office vacancy rate (at around 17 percent) continues to be very high, and with a pipeline of incoming supply totalling about 40 percent of existing stock, fundamentals would appear to be negative. In reality, however, Mumbai continues to lag behind in term of Grade-A stock, meaning that any new supply is quickly taken up and that rental growth for those properties remains strong, says the report.
The city is emerging as the business process outsourcing (BPO) in India. The early foreign investors in this sector bought income-producing assets in business parks along with local partners and benefitted greatly. Some of these assets have now been earmarked for sale, in particular via India’s newly emerging REIT sector, which is expected to launch its first IPO in the first quarter of 2018.
8 to 9 percent annually, together with healthy new tenant demand rental growth has been reported by operators of BPO facilities. However, with the emergence of automation and artificial intelligence technologies the BPO industry is tapering off.
As compared to other Indian cities, New Delhi remains unpopular with investors. According to the report this is mainly due to a downtrend in development of residential sector.
Even though this has created a chance to supply bridging finance, there are not many foreigners who have shown interest in it. The report suggests that north Indian developers tend to be overleveraged and often hold portfolios of high-end housing which is in oversupply. Thus many projects have faced delays and some developers have acquired a poor reputation.
Nonetheless there is a big potential the moment the markets turn. Report points, Delhi will be one of the first cities to start seeing a pickup.
According to JLL Delhi missed its opportunity to grab a share of the surging growth seen in business parks located in the south. Even though there was recent demand from IT companies, uptake overall has been slow, leaving office vacancies at an elevated 30 percent. Thus it lacks when it comes to absorption however rentals have still been holding firm unlike the lower vacancies and higher rentals in Mumbai.
India is the only country to provide long-term sustainable 3 to 5 percent rental growth profile over a long period. Investors identified India among others as a destination where data centres are projected to provide 13 to 15 percent IRR.
Investors are interested about affordable housing as an asset class even though supply of affordable homes increased in last 3 quarters. The report says the important reason being availability of land at affordable price and not so far away from the cities, no single window approvals, and time overruns etc.
India continues to attract strong flows of institutional and sovereign wealth type capital suggests the report. It adds, investment in India offer massive scale opportunity and continues to be strategic in nature. Also, most international investors in India prefer commercial property, with cap rates currently averaging in the range of 8.5 percent to 8.75 percent.
Mostly due to tax reforms, India logistics sector has recently been the target of an investment boom. The average appreciation in rentals has been anything between 8 to 10 percent per annum, higher as compared to office space, growing 5 to 7 percent.
The residential properties, due to demonetisation campaign, GST and increased regulation of real estate development practices, continue to suffer. High-end residential oversupply is another ongoing problem. India remains the real bright spot for new REIT markets.
Hiranandani Group’s TCS Olympus Centre In Thane Inaugurated
The inauguration of TCS Olympus Centre at Hiranandani Estate in Thane was inaugurated by the prestigious Hiranandani Group at the hands of Maharashtra Chief Minister Devendra Fadnavis. The commercial building spread in over 14.5 acres comprises of 2 million square feet of space and 16 storey. The construction of the building was completed in 18 months.
A ‘built to suit’ deal was signed by the India’s software giant Tata Consultancy Services for the commercial office space in the Hiranandani Estate, Ghodbunder Road, Thane. The building is made as a Green campus and is complete with Rainwater Harvesting and a Sewage Treatment Plant, with Eco-friendly, low-emission systems and fixtures.
The Maharashtra CM said, “TCS Olympus Centre is a state of art technology centre, and will accommodate more than 30,000 employees. This in turn, will create further employment opportunities in the Thane and the Navi Mumbai region.” He congratulated the Hiranandani Group on the yet another milestone achieved.
For those who in the IT and ITeS sectors, Thane has become an attractive option as a residential destination. The company said in a release that the ‘walk to work and walk back home’ option has grown for the people opting for a home in Thane, in locations close to their workspaces.
Dr Niranjan Hiranandani described the project as a ‘new next-gen workplace’ and said the state-of the art facility includes a training block, club house and gymnasium, which provides a contemporary and holistic work culture. He also added, “The relocation of corporate offices spread over different locations in Mumbai city and a suburb to Thane’s Ghodbunder Road reflects on the increasing attractiveness of its commercial real estate. Excellent connectivity through road and rail corridors in the Mumbai Region makes Thane ideal for corporates to follow the TCS lead, to relocate and expand in Thane”.
Walmart’s First India Dark Store Opens In Bhiwandi
Walmart Stores now open its first global fulfilment centre, or ‘dark store’ in India. They wish to speed up the operations here in order to benefit from their fast adopting online retail services.
The store is spread in 45,000 square feet centre at Bhiwandi near Mumbai. They will serve kirana stores and other B2B businesses through online orders and they shall also stock packaged consumer products and home supplies.
Krish Iyer, CEO at Walmart India said, “Metro cities are great markets for consumers but the availability of large real estate at a reasonable cost is a challenge”. He explained almost half its sales are generated out of its 20-odd big-box formats through online and sales staff ordering.
Walmart’s Indian unit launched its online platform for members of Best Price Modern Wholesale stores three years ago. However, it was limited to the cities which have the stores. Now Walmart will begin an online platform without any physical store presence.
Iyer further explained, “The idea was conceived nearly a year ago and we first piloted it in Lucknow. Last-mile delivery and the time taken are a challenge but we have to manage that. We have promised delivery within 24 hours to our members”.
On the other hand, Amazon, over a month ago, has also opened its largest fulfilment centre in India on the outskirts of Hyderabad. This gives them 45 centres and warehouses.
Walmart, about four years ago, had agreed to buy Bharti’s 50% stake in their wholesale business that operated Best Price Modern Wholesale stores. They franchise and supply agreements related to almost 200 Easyday retail stores was terminated. With the JV getting dissolved, Walmart now sells goods only to traders, institutions and kiranas.
Walmart will again aggressively begin its store expansion which had been put on hold for some years now. Iyer concluded, “We will open 5-7 stores next year and add another 8-10 in the subsequent year”.
Commercial Real Estate Space Gets A Revamp From InstaOffice
With the advent of co-working solutions in India, one would think the trouble of finding an office space would be over. Even though functional workstations are in supply, the demand for high quality productive spaces at affordable rates is still not being met. InstaOffice steps in right here.
Vikas Lakhani, co-founder of InstaOffice said, “There were two kinds of players in the serviced office space – co-working and premium business centres. On one end of the spectrum, co-working spaces target early-stage companies with economical plans and on the other end, business centres offer the flexibility of a small office at nearly 40% premium over a traditional lease office”. He explained that they want to bridge the gap and provide a solution which would be long-term and economically viable.
The startup’s model rests on disrupting the existing value chain of commercial leasing. It will partner with landlords whereby they can earn high rental yields from their spaces. This way, even the customers will get a high degree of flexibility.
Lakhani added, “Your office needs would be very different depending on the nature, age and size of your business. Hence, we have created multiple offerings that allow us to address the office needs of a very diverse user-base”.
As a solution to the growing end-to-end office space requirements, Lakhani with co-founder Devendra Agarwal in 2016 founded InstaOffice which offers furnished office spaces, meeting rooms, virtual offices, conference rooms and business centres. They started with their business centre in Gurgaon. Today they have more than 0,000 sq ft of area under management, spread across 10 centres in three cities, namely Bangalore, Delhi and Gurgaon.
Lakhani also mentioned their interest in cities like Indore, Jaipur, Pune and Hyderabad over the next three to four quarters. The company has raised its capital from external investors like Globevestor. He said, “We have had just one round of investment so far and most of them have from industry experts or others who have had extensive experience investing in the Indian startup ecosystem”.
Lakhani believes entrepreneurship is a learning process where it is inevitable to make mistakes. “One needs to have the ability to work in an environment where one would not get a lot of handholding – where one basically learns by doing,” he concludes.
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