30 August 2018

1. Bengaluru’s top developers bid for L&T land in a deal worth INR 8-10 bn

Top developers in Bengaluru such as Salarpuria Sattva have bid for a land parcel of 14 acres being sold by engineering and construction giant Larsen & Toubro (L&T) in the city.

(Source: Business  Standard, 20 August, 2018)

Research View

Ever since the inception of the Bangalore International Airport (BIA) in 2008, the North Bengaluru commercial market has been a much anticipated office destination. Currently, North Bengaluru holds Grade A operational stock of around 4 million sq ft (0.37 million sq m) and additional 6.7 million sq ft (0.62 million sq m) is expected to be injected by end of 2021. The demand supply dynamics is also expected to shift the market sentiments towards North Bengaluru, because of the upcoming supply crunch in Outer Ring Road (ORR). Now, both developers and occupiers alike are eyeing North Bengaluru, with a long term perspective. A live example of this is the bidding process of a 14 acre land parcel, being sold by engineering giant Larsen and Toubro (L&T) in North Bengaluru. According to media reports, many top developers such as Salarpuria Satva have bid for this land parcel, which has a development potential of 4 million sq ft (0.37 million sq m), expected to fetch INR 8 billion – INR 10 billion (USD 116 million – USD 145 million), making it the largest transaction this year in South India. A part of this land parcel was earlier sold this year in April, to Phoenix Mills and Canada Pension Plan Investment Board (CPPIB) for INR 6.5 billion (USD 94 million). In our opinion, North Bengaluru will emerge as a prominent commercial hub after a period of five years and occupiers are exploring built to suit options to leverage the current lower rent scenario.

2. DLF-GIC to invest INR 1,250 crore for housing project in Central Delhi

Realty major DLF and Singapore's sovereign wealth fund GIC will invest about INR 1,250 crore over the next four years to construct a housing project in the national capital.

(Source: Times of India, 19 August, 2018)

Research View

DLF had entered into a joint venture with GIC, in September 2015 to develop two new housing projects ‘Midtown’ at Moti Nagar in Central Delhi, having total development potential of 7 million sq ft (0.65 million sqm). The joint entity has started construction of the first phase of this project that involves 2.5 million sqft (0.23 million sqm) of built-up area, and is now planning to invest about INR 1,250 crore (USD182 million) over the next four years. After establishing this partnership for housing projects, DLF formed a separate JV with GIC in commercial segment in December, 2017. We are witnessing a growing trend of global investors strengthening their existing relationships with developers in India by either adding more assets under the same JV or diversifying by including different asset classes in separate JVs. For example, Canadian pension fund and Phoenix Mills Limited formed a strategic investment platform in April 2017 to develop, own, and operate retail-led mixed-use developments across India. Phoenix MarketCity, Bangalore was the asset owned by the platform at its inception, which added two land parcels in Bengaluru and Pune under its portfolio at various stages since then. Also, Godrej Properties and Dutch pension fund APG struck a partnership in 2012 to jointly invest in residential projects. Godrej and APG extended their relationship to form another partnership in March 2018 to jointly invest in office assets in India. We expect to witness more such strategic alliances with global investors deepening their relationship with existing developers capitalising on enhanced comfort in investment management capabilities of the existing partner.

3. Why HNIs are preferring Commercial Real Estate?

Leaps and bounds in infrastructure development, proximity to national capital Delhi, seamless connectivity and availability of quality commercial real estate have all been major incentives for multinational companies from different parts of the world, to grab a pie of the NCR markets of Gurgaon and Noida.

(Source: Business World, 11 July 2018)

Research View

Against a prolonged stillness in the residential real estate market, the commercial assets are performing well in most of the major Indian cities in the past couple of years. Not only among institutional investors, but commercial property is also becoming an increasingly popular option among High net worth investors (HNIs) as well. We are witnessing high interest for commercial leased assets among HNIs and UNIs in premium office assets across cities such as Bengaluru, Mumbai, and National Capital Region (NCR). Commercial properties yield anywhere between 7 to 10% in major Indian commercial markets depending on various factors such as location, demand-supply dynamics, quality of asset and maintenance. The commercial market is forecasted to remain robust with about 35 million sq ft of average absorption for next couple of years. In our opinion, the trend of investment in commercial real estate is likely to grow further in the coming years. We are expecting the launch of the India’s first Real Estate Investment Trusts (REITs) in 2018, which will enable the small investors to invest in commercial real estate assets who are currently deprived to invest in this asset class due to high ticket size of investment.


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