Blackstone, GIC, Brookfield hold more ground in office space segment

Developers sell to repay debt, monetise for growth

Singapore’s sovereign wealth fund GIC has agreed to buy a 40 per cent stake in DLF Cyber City for over Rs 12,000 crore and US-based investment firm Blackstone is set to buy 15 per cent of K Raheja Corp’s office space portfolio for over Rs 2,000 crore.

With these deals the world’s biggest real estate investors, including Brookfield and Canada Pension Plan Investment Board, have entered the 120 million sq ft premium office space market in the country over the past three years. 

The rush for premium commercial real estate has come at a time when Indian developers like DLF face mounting debts. DLF will use Rs 10,000 crore from the GIC deal to repay debt. “When the company is borrowing at 10 per cent and leasing space at six to seven per cent, new financial structures should be explored,” said a DLF executive.

Commercial real estate was hit hard after 2008 and the few global funds with continued interest in India moved away from office space. The slowdown resulted in conversion of most commercial projects into residential ones and demand for office space began catching up with supply.

“With the gap closing, foreign portfolio investors changed their strategy and began leaning towards commercial real estate,” said Suresh Castellino, national director, capital markets and investment services, Colliers International India. "The introduction of real estate investment trusts provided foreign portfolio investors an exit option,” he added.

Developers also sold assets cheap to reduce debt and also to chase further growth. “We have no stress,” said Niranjan Hiranandani, chairman and managing director of the Hiranandani group, which sold 4.5 million sq ft office and retail space in Mumbai for Rs 6,700 crore in October. “It is a long-term strategy. We will add an equal area of commercial space in the next 18 months,” he added.

The last year was, in fact, a record year, with close to 43 million square feet of office space being picked by various investors. “The implementation of REIT, coupled with better alignment of developers with compliances under the RERA Act (which also covers the commercial segment) and policy initiatives aimed at increased transparency in the sector are likely to provide a positive thrust to the commercial real estate market in the near future,” said  Nikhil Bhatia, managing director, capital markets, at India unit of the US-based commercial real estate company CBRE Group.