‘Buying, instead of leasing, office space is the new trend’

The changing times have brought in a shift in the treatment of corporate real estate. Some of the major shifts include; leasing is replaced by buying the real estate.

Occupiers of office space are now looking to buy those spaces instead of leasing them out and stepping forward with a long-term vision for the Indian Market.

One of the easiest ways for corporates to reduce their operational cost is by consolidating multiple offices into a single office. Studies suggest that by achieving space efficiency, there is a considerable growth in employee satisfaction and drop in 40-50 per cent of their operational cost.

The last few years have witnessed mushrooming of co-working spaces in major metros in India. The co-working companies were aimed at fulfilling the need of workspaces in the burgeoning startup ecosystem in the country.

By 2017, it appeared the market had reached its saturation point.

However, the market received a surprise with the arrival of international behemoth WeWork, CoWorks, Awfis and RedBricks in India in July 2017.

The use of smart technology like building automation, life safety, telecommunication, and user systems has been increasing overall. In smart buildings, a provision for people, systems and objects to interact innovatively is created.

The technology providers leverage vertical solutions built on the network as an open, integrated platform, a broad ecosystem of partners and innovative business models to change how communities are designed, built, managed and renewed.

Real estate taxation in India is spread across various levels. Some of the taxes are borne by buyers whereas some by sellers. There are also state-specific taxes in the country. Capital Gain tax, Service Tax or VAT on property, TDS - can all be levied on sale of property.

The timing of demonetisation, GST and the Real Estate Regulatory Act (RERA) caused an imbalance in the real estate industry nationwide. The already slow industry was stagnant for quite some time since demonetisation.

There is one more major tax implication under the GST, with respect to rent on commercial properties.

The Parliament has borrowed the concept of ‘reverse charge mechanism’ from the service tax regime, under GST. Under the service tax regime, there is no provision of reverse mechanism, with respect to the rent paid by the lessee.

The proposed GST provisions, due to the increased rate and the levy under the reverse mechanism, will eventually make it costlier to take any commercial premises on rent.

Sectors such as IT and ITeS, retail, consulting and e-commerce have registered high demand for office space in recent times. The office space absorption in 2017 across the top eight cities amounted to 18 million sq ft (msf) as of September 2017. Private equity inflows in office and IT/ITES/BFSI real estate have grown 150 per cent between 2014 and 2017, backed by a strong attraction towards office sector. In 2017, new retail space of 6.4 million square feet has finished and supply of around 20 million square feet is expected in 2019.

CoreNet Global has more than 10,000 members globally and over 230 members in India. Members consider CoreNet Global as an indispensible resource and network to their successful practice of corporate real estate in India.

CoreNet also provides educational opportunities that help expand careers and grow leadership skills in development programmes (SCLR, MCR and QPCR Designation) customised for Corporate Real Estate Professionals.

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