Authored by Shesh Rao Paplikar, Founder and CEO of Bhive Group
In a sign of rapid growth of the market, there is a growing demand for quality commercial real estate in the central and secondary business district which is leading to repurposing and retrofitting of old office spaces across the top cities.
By redeveloping these properties, developers are able to unlock the asset’s potential and command premium rentals, increase capacity utilisation and gain significant occupier interest. This is particularly opening up immense opportunities for managed workspaces which are democratising commercial real estate by enabling enterprises to take up office spaces based on their requirements for a flexible lease period in a cost effective manner.
These repurposed office spaces with a scope of around 100 million square feet are opening up a Rs 9,000 crore unrealised value in the top six cities. This comes on the back of India expected to touch 1 billion square feet of office space by 2030 from 700 million square feet in the first quarter of 2023.
Here, managed workspace providers play a pivotal role in identifying strategically located properties and repurposing them to bring it at par with a Grade A commercial space, generating a shared value for the developers and occupiers. By investing in retrofitting old office or hotel spaces, managed workspaces are bringing to life old commercial properties in the new world order.
According to property consultant Colliers, relatively older buildings (>10 years) of about 300-350 million square feet need a major overhaul, presenting around Rs 360 Billion retrofitting potential. E-upgrade of existing buildings results in 3-4X net cash flow benefit for developers over remaining asset life.
Redesign A Low Cost, High Returns Play
Repurposing of old commercial properties in the central and secondary business district of major cities is a cost-effective method of expanding realty presence in city hotspots. This assumes significance as land acquisition and new construction requires significant investments whereas an overhaul of the existing property renews the property at a fraction of the cost while re-generating high returns. This retrofitting doesn’t just include old office spaces but also hotels and other commercial-cum-retail properties, elevating the property to a Grade A status.
Retrofitting of old properties can range from partial to full retrofitting and can include upgradation of electrical and air conditioning systems, water flow and uplifting interior fitouts, which is estimated to be approximately 5-10% of the construction cost.
This results in tangible benefits such as nearly a third in energy savings and 5-10% rental appreciation, thereby helping offset the initial investments within the first few years of investment. Managed Workspace providers were quick to realise the value of retrofitting and are working closely with developers and property consultants to identify such projects and give them a new lease of life while enhancing choices for occupiers.
Compliant with Environment, Social and Governance (ESG) norms
One of the most important aspects of retrofitting of old properties is to become compliant with ESG norms which are increasingly becoming the norm for business. JLL estimates that retrofitting rates are estimated to triple from the current 1% to reach 3% of the global stock per year and will require an investment of approximately $3 trillion globally, alongside efforts to address the knowledge gap, upskill the workforce, and scale technology to accelerate the pace of retrofitting.
Hence, it necessitates the need to follow the green building norms established by Indian Green Building Council and comply with Leadership in Energy and Environmental Design (LEED) ratings to future proof the property from future administrative changes. Here, early adopters of retrofitting will reap the benefits of increased rent, reduced financial burden, better access to capital, and the ability to attract and retain occupiers as the demand for net zero carbon (NZC) buildings heightens.
Managed Workspace providers offer a judicious mix of sustainable and affordable workspaces in city hotspots, making them a preferred partner for enterprises’ office space needs. Over the next decade as India progresses towards its goal of net zero carbon emissions by 2070, retrofitting of old real estate will be pivotal in maintaining harmony between business and nature and managed workspace providers will be a crucial link in maintaining this balance.