04 May 2018

1. Nifty Realty Index Shaves Off Gains After Approval of Mumbai Development Plan 2034

After rallying up by almost 10 percent, shares of several real estate companies ended in red on Thursday following the approval of Mumbai Development Plan (MDP) 2034, which was proposed over three years ago.

(Source: India.com, 26 April, 2018)

Research View

The long-awaited Mumbai Draft Development Plan (DP) 2014-2034 finally received the state approval, and likely to be implemented in 2018. Keeping in line with the national objective of ‘Housing for All’, the Mumbai DP has detailed provisions for affordable housing and the opening of additional land resources in No Development Zone (NDZ) to make affordable housing a reality in Mumbai. It releases about 3,355 hectares of land previously designated as no-development zones. A significant portion of 2400 hectares (including 300 hectares of salt pan land) is available for affordable housing. We expect increased participation in infrastructure and affordable housing projects from private sector developers and believe that the upcoming DP would not only decide the spatial framework of the city, but also enhance plot potential with updated floor space index (FSI) and transfer of development rights (TDR) norms in the island city. The benefits of the new plan are likely to materialize in towards the end of 2021. The release of DP2034 sets some good examples for other cities to follow and focus on increasing FSI for commercial, releasing currently non-development land and finally, in alignment to the government’s push for Housing for All.

Agency View:

The DP2034 has pronounced its intent towards meeting ‘Housing for All’ by 2022 by permitting concessions to develop affordable housing on vast salt pan lands. Mumbai’s residential prices have been long unaffordable. The policy measures are intended to provide a respite from high prices. The increase in FSI for the commercial user to 5 in Mumbai augurs well to develop quality office stock. One must look up the premiums payable for such use as these will lead to increased costs. However, the incremental supply due to increased FSI is expected to keep office rental and capital values of under reasonable check. We hope higher commercial FSI to encourage existing premium and luxury residential plans to convert to commercial, particularly given the stagnancy in residential sales for premium and luxury segment developments and its ongoing correction, and compliance complications being faced under RERA by residential projects. We expect developers to initiate conversion from residential to commercial in identified locations. Office leasing demand continues to be steady at 5 to 6 million sq ft per annum in Mumbai.

2. CoWrks leases 1 lakh sq ft shared space in Hyderabad

CoWrks, a shared space provider, has leased 1 lakh sq ft space in Hi-Tec City, Hyderabad. This is in addition to the 1.5 lakh sq ft space it already has in the city.

(Source: ETRealty, 24 April, 2017)

Research View

Office demand from flexible workspace operators is increasing across Indian cities over the past 2-3 years. The space takes up by these operators in India has increased from 0.5 million sq ft in 2015 to 3.5 million sq ft in 2017. In Q1 2018, the market recorded about 1.4 million sq ft of space take up for flexible workspace operations contributing to an 13% of the total pan-Indian gross absorption. In our opinion, for building owners, targeting the smaller occupiers, this could mean more competition as occupiers may prefer these flexible, strategically located sites. While Mumbai, NCR and Bengaluru markets are forerunners in the flexible workspace demand, we foresee that Hyderabad is likely to become the next target city for shared office spaces over 2018. Flexible workspace operators such as Table Space, Isprout and Workafella accounted for 35% of total office absorption of 0.5 million sq ft recorded in Q1 2018 in Hyderabad. We are noticing the high demand for these spaces in the city’s SBD micromarket comprising Hitech city, Madhapur, Gachibowli, Raidurg and surrounding locations. The rising demand for flexible workspaces in SBD is primarily because of the reason that the present vacancy level of Grade A office spaces in the micromarket is being as low as 4%. These collaborative workspaces are also gaining thrust among start-ups, small companies and even with large companies for specific project needs in the city. About 33 million sq ft of Grade A office spaces are under various stages of construction in Hyderabad. With the popularity of flexible workspaces increasing amongst the millennial workforce, developers should lead the way in adopting new strategies to build such collaborative workspaces in their upcoming projects and provide premium amenities to guard against the competition in future.

3. Essar Sells Office Asset In Mumbai To Brookfield For Rs 2,400 Crore

In a big-ticket real estate deal, the Essar group has sold prime commercial property Equinox Business Parks at Bandra-Kurla Complex in Mumbai to global investment firm Brookfield for Rs 2,400 crore.

(Source: Bloomberg Quint, 24 April, 2017)

Research View

India investment market had a robust year in 2017, with an investment volume totaling INR 39,800 crores (USD 6 billion). Office segment has played a major role in Indian investment market. There is an unmatched interest in premium quality rent-yielding office assets in key Indian markets like Mumbai, NCR and Bangalore. Private equity players such as Blackstone, GIC, Brookfield Asset management are investing heavily in office assets in these markets. The Essar and Brookfield deal is one of the largest transactions in India’s commercial real estate sector where Essar group has sold prime commercial property Equinox Business Parks at Bandra-Kurla Complex in Mumbai to global investment firm Brookfield for INR 2,400 crores (USD 0.37 billion). The 10-acre business park comprises four towers, with a leasable office space of about 1.25 million sq ft (0.2 million sq m). We also witnessed several other high-value outright purchases in Mumbai in past few months, indicating continued investor confidence in the city’s office market. Notable transactions include purchase of 60,000 sq ft (5,575 sq m) by Manappuram Finance in Wallstreet in Andheri. Also, Mahindra & Mahindra purchased two floors in Worli-based Mahindra Towers. We expect investors to stay active in 2018, especially in the office market. Rising confidence in economic growth, persistently low real interest rate, and continuous inflow of capital should support the property investment market in 2018.

Contact for more information

Colliers International | Mumbai, Indiabulls Finance Centre, 17th Floor, Unit No. 1701, Tower 3, Senapati Bapat Marg, Elphinstone (W), Mumbai 400 013, Maharashtra, India | Tel: +91 022 4924 9780