17 August 2018

1. JP Morgan inks 3 m sq ft office deal in Bengaluru and Hyderabad

JP Morgan has taken up 1.1-million-sqft office space in Bengaluru and another 0.83 million in Hyderabad as the US bank looks to consolidate its operations in these cities.

(Source: Times of India, 09 August, 2018)

Research View

JP Morgan, a US-based multinational investment bank and financial services company is in plans to consolidate all its operations. The company is in talks to sign a built-to-suit transaction of 1.1 million sq ft (0.1 million sq m) with Bengaluru based Embassy developers in their Embassy Techvillage park located on Outer Ring Road. It has also taken up about 0.83 million sq ft (0.077 million sq m) space in Satva Knowledge City in Hyderabad’s Secondary Business District (SBD) micromarket. The bank also has the option to take up an additional 0.5 million sq ft in both the locations. Both these transactions are recorded as the most significant transactions so far in 2018 in each of the technology-driven cities. Built-to-suit is a leasing option explored by occupiers looking for customised spaces. In our opinion, the built-to-suit trend has picked up in the last couple of years. Last year, Deloitte opted this option for 1.4 million sq ft (0.13 million sq m) facility in Hyderabad’s SBD micromarket, and Capgemini took 1.2 million sq ft (0.11 million sq m) of built-to-suit option in Bengaluru’s Whitefield micromarket in 2016. We expect consolidations by occupiers to be a much-anticipated trend in the coming years, which is most likely to instigate the need for larger areas in built-to-suit options.

2. Embassy Office Parks revamps REIT portfolio ahead of listing

Embassy Office Parks is placing top commercial assets across India under a real estate investment trust (REIT) it is creating to raise $1 billion.

(Source: Mint, 06 August, 2018)

Research View

India is likely to see its first Real Estate Investment Trust (REIT) listing soon as Embassy Office Parks is planning to raise USD1 billion (INR68.5 million) via placing its top commercial assets across India under REIT structure. Some of the key properties that are likely to form part of this REIT portfolio include Embassy Manyata Business Park and a Four Seasons hotel in Bengaluru, Express Towers, 247 Park and First International Financial Center (FIFC) in Mumbai, Quadron, Blue Ridge and Embassy Tech Zone in Pune along with Oxygen SEZ and Galaxy IT Park in National Capital Region (NCR). In our opinion, Blackstone is utilising the proposed REIT as a platform to monetise its assets that are owned individually or with other partners as well as the ones owned jointly with Embassy. While this is contrary to the initial plan of including only jointly owned assets of Blackstone and Embassy in the REIT portfolio. In our opinion, enveloping the operational assets owned by Blackstone in Mumbai and NCR will give a higher stake to Blackstone in the REIT structure. We expect the concept of REITs to be a game changer for the commercial real estate, bringing in professional management, data transparency, establishing valuation benchmarks for commercial assets and international standards to income-generating assets. However, the lacklustre performance of the recently listed Infrastructure Investment Trusts (InvITs) in India may remain an overhang on the investor appetite for such hybrid investment instruments.

3. Ascendas to acquire two more office buildings in Hyderabad

Ascendas India Trust (a-iTrust) will acquire two upcoming commercial office buildings at aVance Business hub in Hyderabad for up to ₹1,400 crore.

(Source: Mint, 31 July 2018)

Research View

Ascendas India Trust (a-iTrust), a part of Singapore’s Ascendas Singbridge is in plans to acquire two upcoming commercial office buildings admeasuring 1.85 million sq ft (0.17 million sq m) at aVance Business hub in Hyderabad for about INR1,400 crore (USD0.2 billion). The Phoenix aVance Business Hub 2 has seven buildings in total. As per media sources, Ascendas had agreed to buy five in May 2018, and now taking rest of the two buildings in the project. The project is located in Secondary Business District (SBD), the city’s most preferred office micromarket. Hyderabad office market is witnessing an active year in terms of private equity investments in Grade A commercial portfolios in 2018. Recently, New York-based Tishman Speyer and Singapore's GIC announced an acquisition of WaveRock, a 2.3 million sq ft (0.2 million sq m) office park by Shapoorji Pallonji Group for about INR 1,800 crore (USD0.26 billion) in the same micromarket. In our opinion, the rising investors’ interest in Hyderabad’s SBD is due to the strong office demand outlook in the micromarket. Hyderabad recorded approximately 1.5 million sq ft (0.1 million sq m) of gross absorption in H1 2018. Besides, about 1.1 million sq ft (84,000 sq m) of space has been pre-committed in Q2 2018 indicating a healthy demand for Grade A office space. More than 90% of the deals in the city remains concentrated in SBD micromarket as the well-established Information Technology micromarket continues to entice occupiers with strategic location, infrastructure enhancements such as road development and flyover constructions, accessibility to international airport via Outer Ring Road (ORR) and the parallel growth of surrounding residential catchments.


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