Single-owned office assets attract premium rents versus strata-owned

April 26, 2024

Traditionally India’s office space is dominated by office buildings that are strata-owned, leading to poorly managed office spaces, but that is changing as developers with deep pockets or backed by institutional money are constructing offices that have single ownership.

monetisation of assets

Offices that have a single owner are able to attract rents that are up to 32 per cent higher than strata-owned which are offices with multiple landlords. Real estate developers build the offices and sell floors or portions of the building separately as a way to monetise them.

“Strata buildings do not demonstrate the energy, upkeep or connect with customers, which is necessary in a business landscape that sees constantly evolving consumer behaviour. This distinction ensures that single-owned assets attract top-tier occupiers, who prioritize reliability in services, utilities, and overall experience, safeguarding their business operations and talent retention efforts,”he added.

Commercial assets

“Grade A commercial assets, meticulously managed through proactive asset management, attract tenants like bees to honey,” said Vinod Rohira, MD and CEO, Commercial Real Estate, K Raheja Corp.

Of the 800 million square feet of office stock, single-ownership building would be less than a third.

Mumbai, Delhi, and Chennai are cities that have a high stock of older office buildings which are all strata-owned. Single-ownership buildings are more prevalent in cities such as Pune, new areas of Bengaluru and Hyderabad, said Abhishek Kiran Gupta, Co-founder, and CEO at CRE Matrix. Gupta said that most of the strata-owned buildings were not well maintained, due to host of reasons including absence of their owners from India, or their preoccupations elsewhere.

BKC story

In the western suburbs of Mumbai, where new stock is coming up, rents in offices with single ownership are 30 per cent higher than strata-owned, in central suburbs 27 per cent higher and in the central business district 26 per cent higher, according to CRE Matrix.

In Bandra Kurla Complex, there are many older offices that are strata-owned but since they are relatively newer and with better amenities the differential is only about 3 per cent.

In Gurugram offices are mostly strata-owned. In Sohna Road, however, single-owned assets have 17 per cent higher rents than those with multiple owners.

In Pune single-ownership office rents were higher by 7-20 per cent across micromarkets compared to strata-owned. For instance, in CBD Pune, single-owned assets commanded 20 per cent higher rents. In Bengaluru, the variance was 2-17 per cent in favour of single-owned assets and in Hyderabad 8-31 per cent.

Private equity firms

Over the last several years private equity firms and asset managers such as Blackstone and Brookfield, wealth funds such as GIC and retirement funds such as CDPQ and Canada Pension Plan have transitioned from being strategic investors to becoming owners and developer of commercial assets. They are building high quality commercial properties, and they may be built either for large tech firms who lease the entire building or leased out to several tenants.

The appearance of real estate investment trusts and the opportunity for an exit has made single-owned offices more attractive for developers. “Tenants are willing to pay a premium for quality office assets, an achievement uniquely realised only by single-owned asset managers,”said Rohira.

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