Commercial office has been an area of investment restricted to High Net worth Individuals (HNI) and institutional investors due to the high volume of investment involved. Traditional investors have generally stayed away from the segment due to its high costs. Moreover sellers of office spaces generally prefer leasing out big spaces which acts as further deterrent for traditional investors, which generally do not have such deep pockets.
Nevertheless, with the introduction of new investment instruments such as Real Estate Investment Trusts (REIT), the overall investment landscape of office space is expected to undergo transformation as traditional investors can also to enter into the erstwhile high end segment. Likewise, the trend of developing smaller office spaces is further adding up to the interest of the traditional investors in the segment as they fall within their affordability limits.
Office Space: Surge in Investment
A plethora of factors such as strong and pro business government coupled with ambitious programs such as Make in India is driving massive investment in the Indian office realty market. According to Square Yards Global Intelligence Centre (GIC), the overall absorption of office space in 2014 has been over 30 million sq. ft., indicating a double digit growth.
Bangalore with occupancy of over 90% leads the list followed by Indias commercial capital Mumbai with over 80% office occupancy. Indian cities are not only benefiting from MNCs and Indian corporate but also from a large number of start ups and Indian entrepreneurs that are further fuelling the demand dynamics.
Higher Appreciation Expected
The present price of Indian office space is relatively less than its 2008 peak. A subdued present price can naturally accommodate price appreciation in the near future thereby making it a great source to investment in the present time. Likewise office properties are also associated with increasing rental yield thereby providing investor a source of strong monthly income. However in the short term the rental yields are expected to remain flat.
Office Space: The way ahead
In the coming time on the backdrop of high demand and policy changes, office space will remain a source of prudent investment for both HNI and traditional investors. Roughly 40 million sq. ft. of office space is expected to enter in the year 2015. Out of this, it is estimated around 33 million sq. ft. will be absorbed indicative of a 10% annual growth. On the backdrop of a robust IT/ITES, e-commerce and rise in start-up activities, Bangalore will lead the chart, followed by Delhi- NCR and Mumbai, which are also witnessing a sound office space realty market on account of rise in economic activities.
