First generation of commercial realty saw sales model and then the Indian developers learnt the global pattern of lease model. But with lesser funding options and liquidity crunch affecting the bottom line of the developers, both the malls and offices are yet again being sold. Track2Realty finds that the commercial realty is again turning out to be buyers’ market.
Leveraging on the experience of the first generation malls, commercial developers in the last few years made a dramatic transition in mall financing from outright sale to lease management. While the lack of marketing strategy and funding opportunities led them to sell off floor space in the initial phase of mall development in India, the next generation malls were driven by big ticket investments and hence given on lease rather than outright sale of space.
Nearly a decade later, now it is back to square one for the commercial realty in India and developers are increasingly opting for selling their office properties than leasing these out. Ironically reasons are the same as with the first generation malls—lack of funding opportunities and liquidity crunch.
When the malls started coming in the big way, developers didn’t have enough funding opportunities, and the understanding of the retail management was also not so refined. As a result, developers preferred selling out space to avoid locking money. However, gradually developers started having multiple channels of finance and they could even offload a part of the equity without selling square footage.
India is ready to see the much matured and evolved realty market with third generation of malls in 2012. However, faced with tight liquidity conditions and falling demand, property developers are increasingly opting for selling their office properties than leasing these out.
Leasing had been the preferred mode for developers in the last few years, as it offered them a steady stream of income and protect them from losing the upside which property market in any case was expected to go. But the slowdown in both residential and commercial properties has changed their conventional strategy.
High property prices, rising interest rates limiting the cash flows of developers, rising borrowing costs, sharp fall in stock markets and tightened bank finance have all created additional liquidity problems for the developers.
…to be continued
