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Retrofitting outdated office stock holds investment potential of Rs 9,000 crores


Landlords and developers are missing investment opportunities and have a scope to upgrade around 100 million sq ft of office space. The retrofitting of these assets has Rs 9,000 crores or USD 1.2 billion worth of unrealised value in the top six cities, as per Colliers’ latest report, ‘Revitalizing outdated buildings: A requisite to avoid redundancy’.

As per the report, the upgradation of buildings will make them more investible, which investors and developers can then bundle into a REIT. Currently, investors are betting on under-construction buildings, due to a lack of readily investible assets.

“This is an opportune time for landlords to upgrade their properties. Many occupiers are considering moving from old-generation to new-generation buildings and more than ever before, looking at aspects like HVAC upgrades, improved indoor air quality standards and smart features. The focus is also on modern amenities, which improve operational efficiency and enable collaboration. Occupiers are also looking at a reduced CAPEX from their side. In this context, retrofitting buildings will revive demand, by generating a renewed sense of interest among occupiers. While upgradation can involve increased costs, landlords can see rental appreciation of up to 20%,” said Ramesh Nair, chief executive officer, India and managing director, market development, at Colliers India.

See also: Healthcare real estate: The need of the hour

The report mentioned that occupiers’ needs and preferences were changing. This made it imperative for outdated office buildings to be upgraded. Occupiers were increasingly exploring smart buildings with modern amenities that improve operational efficiency and enable collaboration. Moreover, COVID-19 has brought the health and safety of employees to the centre stage. As employees gradually returned to the workplace, workspaces would need to meet the expectations of the new normal.

 

Retrofitting outdated office stock holds investment potential of Rs 9,000 crores

Source: Colliers

 

According to Colliers, CBDs of the top Indian cities, such as Nariman Point in Mumbai, Connaught Place in Delhi and MG Road in Bengaluru, had played an enormous role in the growth of these cities. However, about 60% of the total CBD stock of the top six towns required upgradation. Tapping into this potential would be a good investment opportunity for developers and investors.

Bengaluru, Delhi-NCR and Mumbai together accounted for about 75% of the total stock ready for upgradation. Mumbai had the highest potential, with 28 million sq ft of obsolete inventory. In the NCR, Delhi leads for upgradation in the CBD, Nehru Place and Okhla micro-markets where up to 49% of the stock was outdated.

See also: India witnessed USD 2.4 billion inflows into built realty assets in H1 2021, up 52% YoY

“Energy retrofitting, technology integration and design are some vital elements for retrofitting. Tech-enabled air distribution systems, innovative glass technology and double glazing to cut energy requirements are some essential aspects that landlords can look into while retrofitting. Occupiers will increasingly prefer well-being-focused design elements like increased natural lighting and ventilation and integrated outdoor spaces,” said Colliers’ Argenio Antao, chief operating officer, India.

The report mentioned, upgrading these buildings with modern amenities, designs and building technology, would not only attract massive investment opportunities but also command higher rentals and attract global companies. Occupiers would also be inclined towards upgraded buildings further led by the prominence of location, robust public transport and low new supply in these markets.

 

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