Realtors turn commercial space into residential
Real estate developers are facing difficulty to sell office space in Mumbai because of the the poor sales and falling rentals in this segment, so a number of builders are converting their commercial projects into residential ones.
Builders are also finding it easier to work on housing projects, given the self-financing ability of residential projects through end-users advances compared to commercial developments.
Real estate biggies like Oberoi Realty is converting its office space project Oberoi Splendor Commercial into residential project located on Jogeshwari- Vikhroli Link Road in Andheri, a suburb in Mumbai. Brokerage firms like IDFC securities and Motilal Oswal have taken Oberoi Realty’s decision in a positive manner, given the possibility of better sales volume.
Other real estate builders such as Godrej properties and Kohinoor have already executed such decisions in the past few months as the commercial real estate space continue to see growing vacancy levels.
According to a real estate expert, it is better to risk your money and go for more residential projects now, as they are easy to sell compared to commercial space that may take long time to get absorbed.
In a recent report by property consultant Cushman and Wakefield, total net office space absorption across eight Indian cities has gone down by 37 percent from a year ago at 3.6 million square feet in the first quarter of 2013. However, fresh supply continued to rise 18% to 7.9 million sq ft with 3% increase in vacancy rates to 19.6%.
Residential property market is relatively in better position and even more developers trending towards residential projects as customer advances is a better option rather than going for private equity partner induction or expensive loans.
According to managing director, corporate finance at Jones Lang LaSalle, in residential market, the cash flow situation is much better than commercial segment. Moreover, now residential projects work on negative working capital and therefore it makes sense for a developer to focus on this segment.
Kohinoor Group has also converted Kohinoor Square, which is an under-construction project with an entire 52 storey and 203 meters tall commercial tower, into a mixed use project with focus on residential development. The company is also planning to add hospitality units with serviced apartments, which will help the company to fetch higher development potential and will also reduce the possibility of losses. It will be interesting to see whether civic authority allows usage change for a ready tower.
According to a property broker, Kohinoor group has not yet sold or leased out any space in this building.
Last year, Godrej Properties, the real estate arm of Godrej Group, repositioned and resized their projects in Ahmedabad and Hyderabad with focus on residential development. The resizing and repositioning of Godrej’s Ahmedabad Township effectively reduce the developable area to 24 million sq.ft from 40.4 million sq ft, while increasing the ratio of residential area to 90 percent of total area from 65 percent.
Related Real Estate News:
Mumbai commercial realty: An overview
Commercial real estate expected to grow in 2013
Commercial real estate, Cushman and Wakefield, Godrej's Ahmedabad Township, Jones Lang LaSalle, Kohinoor Square, Mumbai, Oberoi Realty, Oberoi Splendor Commercial, Real Estate Developers, Residential projects in Mumbai, Residential property market, Residential real estate
