Realty firms resort to selling smaller offices as demand dips

A number of property developers such as Wadhwa Group, Lodha Developers, Hubtown, Kanakiya are selling offices ranging from 1000 to 2000 sq ft

In the tony Bandra Kurla Complex area in Mumbai, property developer Wadhwa group recently sold 500,000 square feet of office space in its latest commercial project One BKC to professionals such as chartered accountants.

The group advertised the project, saying the office spaces of 1000 sq ft are up for sale in the 1.5 million sq ft project. It hired global consultancy firm Grant Thornton to conduct the transactions and each deal was announced on the LED screen.

Wadhwa is not alone, hit by lower demand from corporates and financial institutions for office spaces and dwindling cashflows, property developers are increasingly opting for selling smaller offices to professionals than leasing them out to generate steady cash.

In Mumbai, the country’s financial capital, a number of property developers such as, Lodha Developers, Hubtown, Kanakiya are selling offices ranging from 1000 to 2000 sq ft.

While Lodha is selling 1500 sq ft offices under the brand ‘Supremus’ in four locations such as Powai, Lower Parel, Worli and Thane, Hubtown is doing two such  projects Solaris and Viva in western suburbs of Mumbai.

Says Vijay Wadhwa, promoter, Wadhwa Group: “big banks and corporates, who are facing financial crunch, have held back their decisions due to tough times.  We thought it is better to cater to demand from professionals such as chartered accountants, advocates, doctors and so on.”

While developers are looking to tap demand from professionals, smaller offices are also becoming means to earn cashflows when demand is down from big businesses.

Says Ramesh Nair, managing director - West India, Jones Lang LaSalle:"Given the current liquidity concerns in the real estate sector, many developers are resorting to breaking their floors into smaller units, so that it becomes easier to sell these units.”

Srinivasan Gopalan, chief fnancial officer, of Wadhwa Group agrees. “All developers need cash, either for own needs or for tapping opportunities in the sector.”

According to Sanjay Dutt, executive managing director of property consultancy Cushman & Wakefield, developers are opting to do smaller projects wherever there is an oversupply.
For instance, Worli-Lower Parel belt and Andheri in western suburbs is
widely believed to be having oversupply of commercial spaces. While Worli and Lower Parel had vacancy rate of 20% each, Andheri had a vacancy of 24% in second quarter of 2012, according to Cushman & Wakefield. In 2009, most of these micromarkets had a vacancy of 14-15%.

BKC is also not lagging behind. Of the total supply of around 3 million sq ft which is believed to have been added in Mumbai the third quarter of this year, 65% was added in BKC, which was 200% more than previous quarter.

“Rentals across the city are expected to remain stable due to continued availability of space and competitive pressure from the upcoming supply. The subdued global sentiment could lead to restrained demand in the upcoming quarter.” Cushman & Wakefield said in June quarter analysis of Mumbai office market.

For developers, the funds generated from the sale of smaller offices are also becoming a means to fund their projects.

“It is similar to what we follow in residential sales. Customer advances help in financing construction. Besides, if you rent smaller offices to so many clients, it will become difficult to manage so many of them,” says R Karthik, chief marketing officer, Lodha Group.

Wadhwa’s Srinivasan agrees. “Since land cost is so expensive, unless you sell something you can not do the financial closure of the project. We used cashflows to hold other part of the building,” he added.

Wadhwa has sold 500,000 sq ft space out of 1.5 million sq ft project at BKC , leased 600,000 sq ft and held the remaining part of the project whose construction will be financed with the sale component.