Severe shortage of Grade A office space and skyrocketing real estate prices have prompted companies to consider refurbished defunct malls as potential new office hubs. Struggling with abysmal vacancy rates, the trend is rapidly growing in western markets of Pune and Mumbai and is soon expected to emerge in other metropolitans.
Inadequate supply of quality office spaces against the ever-increasing demand has led to the emergence of a new trend where retail spaces are now being considered as new office space destinations. According to the global property consultant, JLL, office space supply across premium metros has witnessed a significant dip in the preceding year 2016. Markets such as Pune and Mumbai beheld whopping vacancy rates of 6-16 percent. An almost similar scenario prevailed in other metros such as Bangalore, Hyderabad and Delhi NCR where demand continued to outgrow supply at the hands of deferred project deliveries and pre-leased projects, creating a disequilibrium in market dynamics.
The overall commercial scenario has emerged as an attractive proposition for several developers of failed malls or those with poor footfall rate, who have subsequently converted their retail ventures into Grade A office spaces. Shereena Anwar, LEED AP Director, Malabar Developers, avers, “Leveraging the ongoing commercial sentiment, many developers of non-operating malls observing reduced footfalls and diminishing revenues have converted into commercial complexes and put the overhauled inventories on the block as prospective buyers scurry to buy office properties.”
Several micro-markets in Pune and Mumbai are reeling under the pressure of commercial crisis, badly impacting the big occupiers. Investors scouting for Grade A specifications have to either consider Grade B market or pre-commit to under-construction projects. On the other hand, tenants are either opting for co-working spaces or moving to affordable markets owing to spiraling rentals. Witnessing this demand-supply scenario, developers with poor-performing malls or hotels have started renovating their assets into office spaces.
Kakde Centerport in Shivaji Nagar, Amanora Mall along the Hadapsar-Kharadi Bypass in Pune and Magnet Mall in Mumbai are a few retail outlets that have been either fully refurbished into office spaces or doled out as mixed-use projects with both retail and office spaces. Let alone the non-functional malls, renowned malls in Pune such as Phoenix is also on the list, likely to have additional floors on the top of the structure explicitly dedicated as office spaces. The Pavilion Mall in the city also plans to add five storeys for commercial operations.
Anticipating a further rise in demand, Mahesh Singhi, Founder & MD, Singhi Advisors, says, “Overall commercial preference is likely to soar further in the upcoming quarters, especially in cities such as Pune, Mumbai, Bangalore, and Hyderabad which boast of sound infrastructure and encouraging business policies. The trend would greatly help in catering buyers need as limited projects will be nearing completion, of which most of them are already pre-leased.”
Overall, conversion of retail spaces and malls into commercial offices is seen as an important trend which is likely to change the contemporary dynamics of the commercial real estate market. Presently, largely visible in metro cities, the rub-off effect would be soon reflected in Tier II cities where a severe office space crunch is forcing commercial entities to re-strategise their purchase decisions.