Despite a challenging two years for the commercial real estate, given the concerns around the future of offices in the aftermath of the Covid-19 pandemic, Sanjeev Dasgupta, chief executive officer, Ascendas Property Fund Trustee Pte told FE’s Shubhra Tandon that the office assets continue to remain attractive investment opportunity as evident from the Rs 7,300 crore committed in 2021 alone across six investments. In addition, the fund is betting serious money on data centres with the commitment of Rs 1,200 crore already and more on the way as it scouts for land while it expects its warehouse portfolio to touch 1 billion Singapore dollar in total assets by the year 2025-2026. Edited excerpts:
Q. Have the concerns around the future of office spaces in Covid-era changed your investment strategy towards this asset class?
A. In 2020 we did take stock of these new realities, but we walked away with the insight that the office remains relevant for customers. We are seeing some green shoots in terms of customer engagement and more site visits. Also, leasing has picked up—Bengaluru has done some 7.6 million square feet of leasing in the first nine months which is pretty good. At this point, the sense we are getting through live engagements with tenants is that that they would want their employees in large numbers to come back to the office. Because of the talent scarcity, I think the companies are not pushing them hard, but it is just a matter of time that people will start coming back.
Q. You have significant investments in large IT SEZs and parks. How optimistic are you about such spaces continuing given the rise of co-working spaces?
A. What tenants are looking out at present is a certain flexibility in their workspace planning. However, no one has fully figured out the hybrid work model. In my view, the relevance of big IT parks is not going anywhere, although there might be some changes to the way customers structure their leases in terms of how much they take on as flexible and how much on long-term, which will define the leasing take up going forward.
Q. You recently entered the data centre as an asset class in India and have announced Rs 1,200 crore investment. How big is this opportunity looking like to you and what expansion plans are there?
A. Data centres are the assets of the future. They are a great addition to creating stability in the portfolio because challenges like work from home etc do not present themselves in these. Ascendas India Trust will invest an estimated Rs 1,200 crore (S$216.6 million) on its first data centre campus in Navi Mumbai. The acquisition of the site is completed and the campus will comprise two buildings. In phase one, the first building, which is scheduled to be ready by the second quarter of 2024, will have a built-up area of about 3.25 lakh sq. ft.
There is a total investment planned of Rs 2,400 crore which includes both the real estate plus all the machinery in that data centre. In addition to Mumbai, the cities that we are focused on are Hyderabad, Chennai, Bengaluru and NCR. We have a two-pronged strategy as we are scouting for new sites in the corridors where we do not own any land, and in cities like Hyderabad and Bengaluru, we are looking at the undeveloped lands within our IT parks to see how much of it can be made into data centres depending on the market demand.
Q. How have the occupancies and renewals been and where are the lease rentals in your IT parks this year?
A. We have 89% occupancy in our IT parks portfolio, according to the latest available data as of September. Renewals have been decent in 2021 and we have seen very few pre-terminations in 2021. In the initial part of 2020, we did see some pre-terminations, but this year the renewals situation is good. We have had a pretty high rate of renewals and people have started renewing their 2022 leases as well.
Q. How were the rentals in 2021 versus 2019?
A. Well, 2019 was an amazing year, so, vis-a-vis that market, there has been some correction—just about 5-10%. However, office leasing contracts tend to be long term, and during that long term contract, there is a standard escalation clause. So, when we look at it vis-a-vis the pre-escalated rent, the rents have moved up through Covid. However, people are not surrendering space anymore, so the situation is not as worrying.
Q Any pressure on capital values seen?
A. If there is a rental drop capital value will also drop. The larger portion of the portfolio is still sitting on the historic rent which is escalating. The remaining minority may have had to drop rents in conjunction with the market, but the net impact has not been that acute.
Q What is your investment plan in India over the next 2-3 years and has that changed due to Covid?
A. In the early part of 2019, we said we are at 3 billion Singapore dollars and we said we will get to a 7 billion Singapore dollar over the next 4-5 years— that statement pretty much holds.
Q. What are your plans for the warehousing portfolio?
A. We should have total assets of more than one billion Singapore dollars in logistics in India over the next 4-5 years. At present, we have two capital sources for warehousing. In Ascendas India Trust we own some warehouses in Mumbai, where there is a potential to add another 3 million sq. ft. In addition, under our Ascendas First Space platform, 10 million sq. ft is already under development from their first fund of 300 million Singapore dollars which is almost fully deployed and has total assets of close to 600 million Singapore dollars.