Grade A office space fueling growth in real estate

December 24, 2020 2:01 PM

Grade A office spaces are the major reason for the increased FDI in real estate and are in demand due to multiple factors.

Growing co-working spaces, changing preferences of millennial, robust start-up ecosystem have propelled the demand of Grade A office spaces.

COVID-19 came as a massive blow to the real estate segment, but at the same time it has pushed the industry to opt for various unique ways to conduct business and increase demand. New and innovative ways of doing business in real estate have taken some time for adoption, but slowly and steadily, they have helped the sector to recover the lost ground. No doubt the festival season was icing on the cake.

Before COVID-19, the sector saw growth, thanks to policy changes – inflow of 100% Foreign Direct Investment (FDI), regulatory reforms such as the Real Estate (Regulation and Development) Act (RERA) and Goods and Services Tax (GST) – everyone expected the sector to grow, and it did considerably well. Other policy corrections such as concession of real estate transactions where circle rates are increased to 10%, investment of 100 lakh crores in infrastructure and concessional tax rates for co-operatives have also given the sector a massive boost.

Finance Minister Nirmala Sitharaman said that from April to November 2019 India received FDI of $24.4 billion, which was $21.2 billion in the same period previously. It was a significant improvement. And, commercial real estate – especially Grade A office spaces – attracted a significant portion of the total FDI.

Grade A office space

Grade A office spaces are the major reason for the increased FDI in real estate and are in demand due to multiple factors. Multinational companies, large Indian corporate and brands who are setting their head offices in various Indian citites are the major drivers of this demand. Grade A office spaces offered them with strategic locations in the heart of business centers of the city, state of the art design, and architecture and well-managed office spaces. These three segments needed the best of office space available for their development centers, back office operations, research facilities and stores in cities like Bengaluru, Hyderabad, Pune, Mumbai, Gurugram & Noida. There has been a steady demand from them. Companies like CISCO, Amazon, Merrill Lynch, GE, Goldman Sachs have outside their home countries largest offices based out of India.

Reasons for Growth of business

Growing co-working spaces, changing preferences of millennial, robust start-up ecosystem have propelled the demand of Grade A office spaces. Also, another factor has been the growing amount of leasing and investor’s activity (though this year investors have been a little cautious) once dominated by IT/ITES now witnessing leasing by many other sectors. BFSI, Consultancy services, FMCG companies, healthcare, start-ups, to name a few. All of them are actively going for Grade A office spaces across the country.

Supply

With so much demand from across business verticals, the market is ripe with opportunities for the suppliers/builders. Within the ecosystem of office space supply if we see – the biggest chunk is the supply of Grade A office spaces. Ticket size of such properties range from Rs 20 crore to Rs 100 crore, which certainly requires deep pockets, refined understanding of lease structure, need for active asset management and last, but not the least, the desire for the best.

Grade A office supplies are being met with considerable ease, effect of the pandemic notwithstanding. Even for market pundits, the growth it has achieved was not anticipated. However, there could be some markets – such as Bengaluru, Pune and Chennai — where the tenants could face some issues finding the right option. Primarily that is because very few builders there have started providing Grade A office space solutions to the customers.

(By Divaker Bhalla, CEO, DNA Ventures Pvt Ltd)

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