Developers turn to small office needs

As large deals dwindle, the target is professionals looking for work space

Shiv Sena leader Manohar Joshi's Kohinoor group launched, on Akshay Tritiya day, office spaces of 1,000-1,500 sq ft each under its The Chambers project at Kohinoor Square in the Dadar area. Within three days, it sold half of nine floors with an area of 12,000-14,000 sq ft each to professionals such as chartered accountants, advocates, auditors and so on. The price was Rs 20,000 a sq ft. Kohinoor is the latest among Mumbai property developers which increasingly opting for selling smaller offices to such professionals, as large companies and financial institutions defer leasing spaces.

Late last year, another developer, the Wadhwa Group, sold 400,000 sq ft of office space at the Bandra Kurla Complex to chartered accountants, advocates and so on.

A number of property developers such as Lodha Developers, Hubtown and Kanakiya are following this trend, of selling office space of 1,000-2,000 sq ft to professionals and businessmen.

"Large companies are not taking big spaces. So, developers want to sell smaller offices to get cash flows," said Raja Seetharaman, managing director at Aperon Realty, a global realty consultant.

According to realty consultant Cushman & Wakefield, net absorption of office spaces has come down by 38 per cent over a year, to 3.6 million sq ft in the top eight cities, including Mumbai, in the first quarter of 2013. However, developers do not accept that they are selling smaller offices to professionals only because larger deals are not happening. "It is about creating a different portfolio of products, like fast moving consumer goods companies making different types of soaps," said Vimal Shah, managing director of Hubtown, which is selling even smaller spaces of 560 sq ft each in three projects - Hubtown Viva, Hubtown Solaris, Hubtown Star - at the western suburbs here.

Added Srinivasan Gopalan, chief financial officer of Wadhwa Group, "Realisation is better, as ticket sizes are manageable for clients. When you do a 100,000 sq ft deal, you negotiate with clients."

Atul Modak, vice-president, Kohinoor Square, agrees that dealing with smaller clients is easier. Large companies take time in due diligence and board approvals take three to six months. "Professionals come and see and take fast decisions," he said. Seetharaman of Aperon Realty believes that buying smaller offices also serves as a good investment option for buyers, as they give better returns than residential properties. "Lease returns in commercial properties are nine to 12 per cent, while it is just three to five per cent in residential ones. So, for people who buy these and lease these out, it is a good bet," he added.

SMALLER DEALS

• Developers selling office spaces of 1,000-2,000 sq ft to professionals and businessmen
• Large corporates are not buying big spaces, so developers selling smaller offices to get cash flows
• Realisation are better as ticket sizes are manageable for clients, says Wadhwa Group CFO Srinivasan Gopalan