Rs 23,380 cr needed to upgrade grade A offices in four metros: JLL report

An amount of Rs 23,380 crore is required for asset enhancement, retrofitting and upgrading the Grade A office stock in Bengaluru, Mumbai, Delhi NCR, and Hyderabad on a combined area of 347 million sq ft, says a JLL report.

The upgrade includes age, services, and amenities-related improvements and sustainability-led asset enhancements. However, for the Capex spend calculations, all projects over 100,000 sq ft have been considered irrespective of the age of the asset.

The four cities accounted for 79 per cent of cumulative gross leasing activity between 2018 and H1 2022 (first half of 2022) among the top seven cities. In fact, these cities are also the biggest office markets in India, holding 569 million sq ft, or 77 per cent of the total Grade A office stock of 740 million sq ft in the country’s top seven cities, namely, Mumbai, Delhi NCR, Bengaluru, Pune, Chennai, Hyderabad and Kolkata.

Moreover, the capex spending needed for green upgrades across these four cities is Rs 21,400 crore, which is nearly 92 per cent of the estimated total investment.

Among these cities, Bengaluru has 118.8 million sq ft of Grade A stock that requires upgrade, followed by Mumbai (85.8 million sq ft), Delhi NCR (80.0 million sq ft), and Hyderabad (62.8 million sq ft), the report said.

A substantial 319 million sq ft in these four cities have no green certification and 43 per cent of this stock is also more than 11 years old.

“In a world envisaged to be net zero carbon in the future, upgrades are needed for nearly 61 per cent of the total operational Grade A office stock across these cities,” said Aditya Desai, Executive Director and Head (PDS sales & Investor services), India, JLL.

India’s biggest cities in terms of operational Grade A office stock are the most in need of substantial capex spending to upgrade their ageing buildings, Desai added.

According to the report, Grade A office stock in India across the top seven cities was about 740 million sq ft at the end of June 2022, and has grown by 44 per cent over the past five years. Concurrently, a substantial 39.3 per cent of this operational Grade A stock dates back to 2010 or earlier.

“Future-proofing of real estate assets has undergone a shift with greater focus on sustainability, while earlier the focus was primarily on amenity upgrades. Buildings, irrespective of their age now need to look at upgrades and retrofits in a new light,” said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.

Given that upgrading to green certifications will form a key part of future-proofing initiatives, asset owners will need to factor in the costs for such upgrades as well. Bengaluru with its substantial Grade A stock has a sizable requirement of Rs 7,590 crore while Mumbai needs Rs 7010 crore, which adds up to 64.2 per cent of the estimated total investment needed across the top four office markets, Das added.