Amidst the increasing demand from global investors and occupiers for Green Grade A commercial office space , the aging stock in top cities requires a large-scale upgradation and retrofitting to make it sustainable and investment-friendly.
According to a recent report by a leading global real estate advisory-JLL, a huge investment of Rs 23380 crore is required for the sustainable upgrade of grade A office stock in the top four cities of Bengaluru, Delhi NCR, Mumbai and Hyderabad .
The four major metros, Bengaluru, Mumbai, Delhi NCR, and Hyderabad hold 347 million sq. ft of grade A office stock which requires upgradation and retrofits. Upgradation includes age, services, and amenities-related upgrades as well as sustainability-led asset enhancements. Incidentally, these metros are also the biggest office markets in India accounting for 77% of Grade A office stock and about 61 percent of this stock is eligible for upgradation/retrofitting, totalling 347 million sq ft. As much as 89 percent of this upgradable stock has no sustainability certifications. Bengaluru and Mumbai account for 62.4 percent of potential capex spend of Rs 23380 crore.
As per JLL assessment, these four metro cities contributed 79% of the cumulative gross leasing activity during 2018- H1 2022 for the top seven cities. Among these cities, Bengaluru has 118.8 million sq. ft of Grade A stock that requires upgradation, followed by Mumbai with 85.8 million sq. ft, Delhi NCR with 80.0 million sq. ft, and Hyderabad with 62.8 million sq. ft. Upgradation includes age, services, and amenities-related upgrades as well as green upgrades required for the entire operational Grade A stock across the four major cities under consideration. For the capex spend calculations, all projects over 100,000 sq ft have been considered irrespective of the age of the asset.
The top four cities account for 569 million sq. ft of Grade A office stock of the total 740 million sq. ft of pan-India office stock (top seven cities). A substantial 319 million sq. ft in these four cities have no sustainability/green certification and 43% of this stock is also more than 11 years old, creating a significant capex investment opportunity. In fact, just the capex spending needed for green upgrades across these four cities is Rs 21400 crore which is nearly 92% of the estimated total investment, indicating what lies ahead for making real estate more sustainable and responsible.
Futureproofing of buildings, according to Aditya Desai, Executive Director and Head PDS Sales & Investor Services -India, JLL is about change and flexibility. Building upgradation is mainly an economic-driven concept, which ensures that the building continues to create value for investors, is well-occupied, and generates rental income in line with the best buildings through elements of experience, inclusion, and services upgrades using construction and technology interventions. Assets focused on sustainability initiatives, experience, habitat, flexibility, and innovation where communities can thrive will be the shape of the buildings of the present and future. Hence, apart from the regular upgrade features, real estate also needs to fully integrate itself into the ESG spectrum. India’s biggest cities in terms of operational Grade A office stock are also the most in need of substantial capex spending to upgrade their aging buildings. In a world envisaged to be net zero carbon in the future, upgrades are needed for nearly 61% of the total operational Grade A office stock across these cities,” said Aditya Desai, Executive Director and Head (PDS sales & Investor services), India, JLL.
The social impact of such sustainability interventions and building upgrades to provide every occupant with equitable access to the building services and amenities and support their right to a healthy and safe working environment by building inclusive communities will be critical to achieving ESG goals, which can be accomplished through upgradation/retrofit of existing assets.Significantly, the Grade A office stock in India across the top seven cities stands at 740 million sq ft at the end of June 2022 and has grown by 44 percent over the past five years. Concurrently, a substantial 39.3 percent of this operational Grade A stock dates back to 2010 or earlier.
According to Samantak Das , Chief Economist and Head of Research and REIS India JLL, futureproofing of real estate assets has undergone a shift with a greater focus on sustainability while earlier the focus was primarily on amenity upgrades. Buildings irrespective of their age now need to look at upgradation/retrofits in a new light. The JLL analysis has considered all these aspects. India’s office Grade A stock has a green penetration of 43.8% and given that upgrading to green certifications will form a key part of building future-proofing initiatives, asset owners will need to factor in the costs for such upgrades as well.