Real estate developers and landlords need to retrofit their old office buildings, comprising 100 million square feet area, across six major cities at an estimated investment of around Rs 9,000 crore in order to acquire better tenants and earn more rentals, according to Colliers India.
In its report, property consultant Colliers India has examined the up-gradation potential of office buildings in the top-6 cities, amid the need to improve health and safety aspects in offices during the COVID-19 pandemic.
"While upgrading buildings require significant capital, the benefits range from rental appreciation and lower operational costs, to attracting blue-chip occupiers and increasing the longevity of the building," said Ramesh Nair, chief executive officer of Colliers India.
The consultant has suggested that developers should tap the massive opportunity to retrofit ageing office stock, that would require up to Rs 9,000 crore ($1.2 billion) in funding.
The up-gradation would make these offices more attractive to occupiers, leading to increased rents and lower vacancies as well as sustainable benefits like reduction in carbon emissions.
"...retrofitting buildings will revive demand by generating a renewed sense of interest among occupiers. While up-gradation can involve increased costs, landlords can see the rental appreciation of up to 20 per cent," Nair added.
Colliers said up-gradation of buildings will make them more investible, which can be bundled into a REIT (Real Estate Investment Trust).
The consultant has recommend developers to reconfigure outdated stock by upgrading HVAC systems, electrical wiring, and external facade which can enhance the operational efficiency and increase the longevity of the buildings.
"We estimate that landlords and developers have a scope to upgrade around 100 million sq ft of office space in the top-6 cities, accounting for 14 per cent of the existing stock," the report said.
These six cities are: Bengaluru, Chennai, Delhi NCR, Hyderabad, Mumbai, and Pune.
"Currently, investors are betting on under-construction buildings due to lack of readily investible assets," the consultant pointed out.
Bengaluru, Delhi-NCR and Mumbai together account for about 75 per cent of the total stock ready for up-gradation.
Mumbai has the highest potential, with 28 million sq ft of outdated stock. In the NCR, Delhi leads for up-gradation in the CBD (central business district), Nehru Place and Okhla micromarkets where up to 49 per cent of the stock is outdated.
Colliers India said that tenants need, and preference are changing, making it imperative for outdated office buildings to be upgraded.
"Occupiers are increasingly exploring smart buildings with modern amenities that improve operational efficiency and enable collaboration.
"Moreover, COVID-19 has brought the health and safety of employees to the centre stage. As employees gradually return to the workplace, workspaces will need to meet the expectations of the new normal," it said.
