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As demand dips, realtors resort to selling smaller offices

Source : BUSINESS_STANDARD
Last Updated: Sat, Oct 20, 2012 18:44 hrs

Recently, real estate developer Wadhwa Group sold 5,00,000 sq ft of office space in its commercial project, One BKC, in the Bandra Kurla Complex here to professionals such as chartered accountants. In its advertisements for the project, the group said office spaces of 1,000 sq ft were up for sale. It had hired global consultancy firm Grant Thornton to carry out the transactions.

The Wadhwa Group is not alone. Hit by low demand for office space from companies and financial institutions and dwindling cashflows, property developers are increasingly choosing to sell smaller offices to professionals, rather than leasing these to generate steady cash. In Mumbai, the country’s financial capital, a number of property developers such as Lodha Developers, Hubtown and Kanakiya are selling office spaces of 1,000-2,000 sq ft.

While Lodha is selling 1,500-sq ft offices under the brand Supremus in Powai, Lower Parel, Worli and Thane, Hubtown is developing the Solaris and Viva projects the in the western suburbs of the city.

Vijay Wadhwa, promoter, Wadhwa Group, says, “Big banks and corporates, which are facing a financial crunch, have held back decisions because of the tough times. We thought it was better to cater to demand from professionals such as chartered accountants, advocates and doctors.” While developers are looking to tap the demand from professionals, smaller offices are also becoming a major source of cashflow. Ramesh Nair, managing director (West India), Jones Lang LaSalle, says, “Given the current liquidity concerns in the real estate sector, many developers are resorting to breaking their floors into smaller units to make it easier to sell these units.” Srinivasan Gopalan, chief financial officer of Wadhwa Group, agrees. “All developers need cash, either for own needs or for tapping opportunities in the sector,” he says.

Oversupply
Sanjay Dutt, executive managing director of property consultancy Cushman & Wakefield, says developers are opting to develop smaller projects wherever there is oversupply. For instance, the Worli-Lower Parel belt and Andheri in the western suburbs are widely believed to have an oversupply of commercial space. While Worli and Lower Parel had a vacancy rate of 20 per cent each, Andheri had a vacancy rate of 24 per cent in the quarter ended June, according to Cushman & Wakefield. In 2009, most of these micromarkets had a vacancy rate of 14-15 per cent. Of the total supply of about three million sq ft believed to have been added to Mumbai in the quarter ended September, 65 per cent was accounted for by the Bandra Kurla Complex. This was 200 per cent more in the previous quarter.

“Rentals across the city are expected to remain stable due to continued availability of space and competitive pressure from expected supply. The subdued global sentiment could lead to restrained demand in the coming quarter,” Cushman & Wakefield had said in an analysis of the Mumbai office market in the quarter ended June.

Self financing
For developers, the funds generated through the sale of small offices are also becoming a means to fund projects. “It is similar to what we follow in residential sales. Customer advances help in financing construction. Besides, if you rent smaller offices to so many clients, it will become difficult to manage them,” says R Karthik, chief marketing officer, Lodha Group. “Since land is so expensive, unless you sell something, you cannot carry out the financial closure of a project,” Gopalan says. Of its 1.5-million sq ft project at the Bandra Kurla Complex, the Wadhwa Group is considering leasing 6,00,000 sq ft.




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