India’s commercial real estate balance shifts towards organized real estate segment: ANAROCK

India’s commercial real estate balance shifts towards organized real estate segment: ANAROCK

Even as the residential market continues to struggle, commercial spaces continue to see large investment inflows, a steady rise in rentals and falling vacancy levels - all backed by extremely robust demand. To this contrasting backdrop of asset classes, a significant trend being seen in the commercial office space is the growing popularity of strata sales with both investors and developers.

No doubt, the model of the leased space remains the mainstay course for office space developers, since it assures them of continued hold on their most cost-intensive properties. In the past, strata sold office spaces were primarily associated with lower-grade projects and developers who adhered to a 'build it, sell it and forget it' philosophy. Today, even India's leading office space developers consider strata sales in select under-construction and completed commercial projects - including Grade A developments - a viable means to monetise their value.

In fact, with demand for commercial developments picking up, developers are open to selling not just large office spaces but smaller spaces as well. Simultaneously, they seek to maintain a wholesome balance. While leased spaces allow them to retain control of their holdings, the strata sales model not only helps raise considerable capital quickly but also minimises the financial and logistical challenges of managing and maintaining leased buildings.

This is far from a new business philosophy. The trend of strata sales is, in fact, deeply entrenched in mature Asian markets such as Singapore and Hong Kong. The fact that it now finds resonance in Indian commercial hubs such as Bengaluru and Mumbai should come as no surprise; a healthy balance between leased and sold commercial assets is indicative of a maturing market wherein transparency and product quality are no longer areas of concern.

Demand from SMEs and Entrepreneurs

End-users and investors of all persuasions now see the benefits of buying strata office units. Family offices and small and medium-sized businesses increasingly prefer to own their office spaces to combat the volatility of office rental cycles. For this reason, more and more successful entrepreneurs keen to maintain financial predictability during their growth phase now invest in smaller office spaces which can be sold quickly when the time comes to scale up. Occupiers are, of course, perpetually focused on smaller spaces to gain visibility in key business districts while keeping finances in rein.

Against falling vacancy levels and consistent demand, office rents in major markets such as Bengaluru, Mumbai and Gurugram have nowhere to go buy further up. Investing in an office strata unit locks in long-term operational costs, protecting the occupier from rental escalation risks during the lease renewal period. Long-term occupancy of an owned office space also helps associate companies with certain locations - which, as we have seen in many cases, can be a peerless branding strategy.