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. As per a recent JLL assessment, these four cities also 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. The estimated total investment across the four cities for the upgradation of the said total stock is around Rs 23,380 crore.
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.
For the capex spend calculations, all projects over 1.00,000 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 21,400 crore which is nearly 92% of the estimated total investment, indicating the road ahead needed for making real estate more sustainable and responsible.
“Futureproofing of buildings 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 and 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.
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% over the past five years. Concurrently, a substantial 39.3% of this operational Grade A stock dates back to 2010 or earlier.
“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. Our analysis has considered all these aspects. India’s office Grade-A stock has a green penetration of 43.8%. 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. Bengaluru with its substantial Grade-A stock has a sizeable requirement of Rs 7,590 crore while Mumbai needs Rs 7,010 crore, which adds up to 64.2% of the estimated total investment needed across the top four office markets,” said Samantak Das, chief economist and head of research and REIS, India, JLL.
