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Offshore Institutional entities, PEs lead Pune property market’s Rs 9,600-cr investments since 2015

Pune’s property markethas attracted institutional investments of around Rs 9,600 crore during 2015-20 led by office assets that accounted for the highest share of 49% of the total institutional investments due to robust demand, stable rentals, and low office vacancy of 5%, said aJLL India report. The housing segment in the city garnered 25% share of investments during this period.

Investment sentiments picked up during the first quarter of 2021, but subsequent lockdown has led to a brief hiatus in deals. Between 2015 and 2020, foreign institutional investors, mostly private equity funds, dominate the deal volumes in the city with a 77% share of total investments.

Leading funds have also acquired office space assets to build portfolios for listing through Real Estate Investment Trusts (REITs). Global funds, meanwhile, have mostly transacted outright purchase of office assets.

“Pune’s urban infrastructure is set to receive a major facelift with the planned metro network and the Ring Road. The city’s metro network is expected to go operational in the next 24 months…The city’s advantage of talent, technology, industry, and connectivity will propel it towards becoming the next megacity of India. As the real estate sector grows in tandem and quality assets are developed continuously, the city is expected to provide huge opportunities for occupiers, developers and investors, across the globe,” said Sanjay Bajaj, Managing Director – Pune, Logistics & Industrial, JLL India.

According to him, investors are keen to evaluate Grade A office and industrial assets, as both asset classes have strong fundamentals and will provide stable long-term returns. Office and industrial focused funds are likely to pursue high value deals in relevant micro-markets of the city. New investment platforms are expected to be formed in 2021.

Among the key infrastructure developments, a new three strip greenfield airport is expected to come up at Purandar for which a 4,000-acre land acquisition is underway. The airport is expected to have one cargo and three passengers’ strips. This will be bigger than Panvel or Mumbai airport. Panvel airport is also expected to provide a boost to the growth story of Pune.

“Driven primarily by IT/ITeS, BFSI, Fintech, R&D, and manufacturing occupiers, Pune has grown rapidly as a market and has been witnessing leasing activity on an average of 5 million sq ft per year (except 2020) with peak demand of 6.4 to 6.5 million sq. ft in 2018-2019. The steady demand for Grade A office spaces led to increased occupancy, resulting in vacancy levels steadily dropping from 15% in 2010 to 5% in 2020, along with a strong growth in rentals during the same time frame,” stated Samantak Das, Chief Economist and Head of Research & REIS, JLL India.

According to him, large global Institutional investors have recognized this growth potential and have established a strong presence in the Pune office market. Going forward, the presence of these institutional owners is only expected to increase and will further work towards increasing the attractiveness of Pune as an office market. In addition, the HNI demand has been robust over a sustained period of time and has contributed largely to both core asset sales and quality speculative assets which were built to suit the needs of the occupiers.

The Pune office market accounts for a sizable share of the two listed REITs, highlighting the potential for REITable office assets from the city. The risk mitigation strategy followed by REITs entails asset acquisition across cities and asset classes.

According to JLL research, around 31 million sq ft of office space stock in Pune would be eligible for REITs including all the operational lease-only projects with area greater than or equal to 2 lakh sq ft and a vacancy of less than or equal to 20%. Most of these projects are owned and operated by prominent developers. Kharadi, Baner, Balewadi, and Hinjewadi which are major IT-office space hubs, would account for 49% of the total REITable office space in Pune.

Logistics and Industrial has been one of the consistently performing markets in the country due to its balanced industrial sector and growing consumption base. It is home to several foreign industrial manufacturers and a sizable R&D base for engineering, driving a sizable chunk of Maharashtra’s GDP.

The Pune industrial and warehousing market has grown steadily, with the total stock increasing at a CAGR of 19% over the last 5 years to reach nearly 27 million sq ft in 2020. Out of this, nearly 65% is Grade A stock. More importantly, the market has been characterised by good demand-supply dynamics in the last few years, which resulted in vacancy levels hovering around the 10% mark. JLL expects that the healthy demand-supply dynamics will continue over the next few years, making Pune one of the most attractive markets in the country for the development of industrial parks and warehouses.

Most student housing and co-living players currently operating in Pune have adopted the asset-light strategy of leasing residential units or an entire building from the property owner, and subleasing individual rooms or beds to end-users. Some operators also sign long-term management agreements with landlords to run their premises as a student housing / co-living facility.

Selected co-living and student housing accommodation are in the north-western regions of Hinjewadi-Wakad-Tathawade and Baner-Balewadi, followed by Viman Nagar and Kharadi in the North East. Only a few organised setups are present in the Central part of the city due to restricted supply of relevant residential properties, which can be converted into co-living or student housing setups.


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