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Blackstone sees Indian commercial real estate turnaround

1 Comment   |   June 19, 2014    12:04am   |Contributed by Indian Realty News

Singapore: Blackstone Group Lp, the world’s largest real estate investor, is leading a wave of investors in Indian commercial property as rents at three-year lows and Asia’s worst-performing currency lured global companies. The company has invested $1 billion in commercial real estate across India to become the largest landlord in the country among private-equity investors
“We are seeing rental growth in almost all markets,” said Tuhin Parikh, Blackstone’s senior managing director in the real estate group in Mumbai. “All the tenants facing the West are seeing a huge uptake in what they do and therefore taking large spaces in India.”

Blackstone, which opened its Mumbai office in 2005, Rothschild family-backed Xander Group Inc. and APG Asset Management NV of the Netherlands are among investors increasing their office assets in Asia’s third largest economy.

New York- based Blackstone has invested $1 billion in commercial real estate across India to become the largest landlord in the country among private-equity investors, said IIFL Ltd, a Mumbai-based brokerage.

Demand for Grade-A offices will climb 3% to 22.9 million sq. ft in 2014 from last year, the first increase in three years and the highest since 2012, according to broker Cushman and Wakefield Inc. The strongest demand will be in Bengaluru, the southern city formerly known as Bangalore, followed by the capital New Delhi and its surrounding area, the financial hub of Mumbai and Pune, a satellite town southeast of Mumbai, the New York-based broker said.

‘Growing sophistication’

Office rents in India’s main central business districts have declined about 5 percent since the first quarter of 2013 to the lowest since 2011, said Sigrid Zialcita, managing director of research for Asia-Pacific at Cushman and Wakefield in Singapore. Rents in Mumbai’s CBD, at $4.5 per sq. ft per month in the quarter ended March, compare with $6.61 in Shanghai, data from Cushman and Wakefield showed.

The Indian rupee was the worst-performer against the dollar in Asia from 2011 to 2013, dropping 26%. This year, the currency is the fourth-best performer in the region, up 2.4%, data compiled by Bloomberg showed.

“The current trend emphasizes the growing sophistication and effort made by global investors in seeking strong themes, even in seemingly challenging geographies, to benefit from pockets of growth,” said Priyaranjan Kumar, the regional director of capital markets at Cushman and Wakefield in Singapore.

Xerox Corp., the US printer and photocopier pioneer, and Australia and New Zealand Banking Group Ltd (ANZ), Australia’s third- largest lender, are among companies that have opened new offices in the past year as expectations that newly elected Indian Prime Minister Narendra Modi will revive the economy have grown since his landslide victory in May.

Vacancies fall

India has been in the top five global office markets for at least the past seven years, with average annual net demand of more than 30 million sq. ft, Cushman and Wakefield said.
The recovery is helping to resolve a glut. India’s slowing economy had led to declines in office occupancies that froze development and prompted some builders to convert commercial projects into housing.

Office demand fell 5% in the first quarter to about 6.3 million sq. ft from 6.6 million sq. ft in the same period a year earlier, said property broker CBRE Group Inc. The demand is at its lowest in eight years, dropping 45% from the high in 2008, as inventories peaked amid more supply, IIFL said.
Vacancy rates in Mumbai, which peaked at 22.8% in 2012, declined to 19.7% in the quarter ending in March from the previous quarter, Cushman and Wakefield said. In Gurgaon, near New Delhi, they fell to 10.49% in the three months ended March from 12.32% in the December quarter, it said.

Xander, APG

Xander Group, with about $2 billion of equity capital in property assets, and a consortium led by Dutch pension fund asset manager APG announced a $300 million venture in May that will buy commercial assets across India’s main office markets.

The APG-led group is seeking to capitalize on demand from companies in the information technology and financial services industries that serve global businesses from hubs across India.

“India’s top six cities have consistently witnessed the largest net absorption of office space in the Asia-Pacific region, and perhaps globally,” Sachin Doshi, head of non-listed real estate for Asia-Pacific at APG in Hong Kong said in a statement last month. “This, combined with limited new developments for office projects in India, creates a unique demand-supply gap for good quality office space.”

GIC, Ascendas

Among others, GIC Pte, Singapore’s sovereign wealth fund, and Ascendas Pte, a Singapore-based business-park developer, plan to invest as much as 600 million Singapore dollars ($480 million) in Indian commercial property to meet rising demand, they said in November. Through a fund, they will invest in business space in Bangalore, Chennai, New Delhi and surrounding areas, Hyderabad, Mumbai and Pune, the companies said.

Companies across Europe indicated an increased appetite for global expansion into India, according to a 28 April report by CBRE. Almost half of the firms that responded to the survey said India was their destination of choice because of rapid population growth and gradually recovering economic prospects, beating China as a preferred location, CBRE’s European Occupier Survey showed.
Xerox leased 271,000 sq. ft of additional office space in Bengaluru last year, according to broker Colliers International. The Norwalk, Connecticut-based firm, which has more than 10,000 employees in India, expanded “based on the high-tech growth and ability to hire quality employees in the region,” Arpana Mehra, vice-president of the company’s human resources department, said in an email.

Banks expanding

Melbourne-based ANZ leased 40,000 sq. ft of extra office space in Bengaluru last year, according to CBRE. The new office, across the road from an older facility, added 350 people, taking the support staff to 6,350, said Stephen Ries, a spokesman for the bank.

Morgan Stanley is opening an offshore center in Bengaluru this year to support global operations, adding to existing centers in Mumbai, according to a 23 December statement from the New York-based company. The firm’s Mumbai centers support functions including technology, data, operations and finance.
Amazon.com Inc., Bank of New York Mellon Corp., and FMR LLC (Fidelity Investments) are among global companies that took up new offices in India last year, according to Colliers.

Robust demand

Demand from such tenants is what Blackstone is after. Since its first deal in the Asia-Pacific region in 2007, Blackstone has invested $7 billion through about 30 transactions, including $3 billion of equity, according to the company. About a quarter of its Asian assets are in India.

“We see supply slowing down pretty dramatically, but demand is pretty robust, especially in the office-park business,” Parikh said.

Large office parks, where buildings are grouped together, are what makes India attractive, Parikh said. Demand for space in these parks tends to increase when Western economies, like in the US and Europe now, recover, prompting companies to boost their global support functions.
Blackstone and a partner acquired an office tower in Mumbai’s Nariman Point CBD for `9 billion in November, according to IIFL. It also bought business parks in Bengaluru and Pune last year, IIFL said.

‘Aggressive buyers’

Blackstone has become an “aggressive buyer” in the past two years as developers faced liquidity issues and prices corrected, said Bhaskar Chakraborty, a Mumbai-based analyst at IIFL. “It’s strategy is to take over rent-yielding commercial projects from cash-strapped developers.”
Among office property developers, DLF Ltd will benefit the most from a recovery in demand as the builder has 5 million sq. ft of “ready to move in space”, IIFL said.
Most investors are buying completed offices that are income producing assets, said V. Hari Krishna, director at Kotak Investment Advisors Ltd, a private-equity fund with about $800 million of Indian property assets. Yields for office assets have declined to between 9.5% and 10% compared with 11% a year ago, he said.

“Brokers say this year, demand inquiries and potential leasing is the best they have seen since 2008 across cities,” Hari Krishna said.

With Modi at the helm of the new government, there is optimism he will help jump-start the economy, said Anshuman Magazine, chairman of CBRE South Asia Pvt., in New Delhi.
The election win has prompted economists to raise growth forecasts in the world’s second-most populous nation. Morgan Stanley, Citigroup Inc. and Nomura Holdings Inc. are forecasting faster expansion in the next few years on Modi’s plans to attract investment and build more ports, roads and bridges. Morgan Stanley raised the country’s gross domestic product estimate to a four-year high of 6.5% in the year through March 2016 from 6.2%.

“Everybody has become very optimistic, Magazine said. The biggest frustration was decision making. Even if the new government just starts taking decisions, it will stimulate the economy, and in turn real estate demand.”

Source: Bloomberg With assistance from Narayanan Somasundaram in Sydney.

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One Response to “Blackstone sees Indian commercial real estate turnaround”

pradeep Says:  |  July 4th, 2014 at 12:35 pm  

This is a nice post in an interesting line of content.Thanks for sharing this article, great way of bring such topic to discussion.

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