Pre-leased commercial space sales up 17 per cent in first quarter

Real estate investors are shifting to pre-leased commercial assets from residential properties after demonetisation. Sales of pre-leased commercial properties have risen 17 per cent in the first quarter of this year, according to property data analytics firm Propstack.

Demonetisation hit real estate sales badly in November and December because a third of the market is cash based. 

About 30-40 per cent of residential real estate purchases in the National Capital Region are by investors, while the number is about 20 per cent in Mumbai.

According to Propstack, sales of commercial properties went down by nearly 45 per cent in 2016 compared to 2015.

"There has been an increase in the number of pre-leased spaces acquired by investors in the first quarter of 2017. Investors are preferring pre-leased commercial assets because they are more secure and the cash flows are predictable," said Raja Seetharaman, director at Propstack.

Seetharaman said the sales volume was stable for the first half of 2016 but declined significantly in the second half due to demonetisation and the sluggish business sentiment. 

"In many cities, lower supply during the second half of 2016 also contributed to the decline," Seetharaman said.

Niranjan Hiranandani, chairman of the Hiranandani group, said interest from foreign and domestic investors had risen in pre-leased properties. "Foreign investors are putting money here as opportunities elsewhere have come down and domestic investors are preferring such assets as the risks are minimal and interest rates are declining," he said.

According to Abhishek Tiwari, co-founder at CRE Matrix, a Mumbai-based data analytics firm, investors are opting for pre-leased spaces due to the assurance of annuity income at around 9 per cent per annum and potential appreciation in capital values on expectations of a further yield compression over the next three to five years. Tiwari also said developers continued to face liquidity challenges and were selling commercial properties to tap rising demand. 

"Some developers have sold commercial assets in distress, whereas others have closed opportunistic deals," he added.

He said capital values had shot up 10-12 per cent, year on year, due to the rise in demand and fall in supply of Grade A pre-leased commercial space.

The fall in interest rates over the last two years had augmented demand for annuity assets, he added. Ramesh Nair, country head and CEO of JLL India, said more deals were happening among developers than with corporates or investors.