Futureproofing 3.0: Upgrading & Retrofitting assets
The top four cities - Bengaluru, Mumbai, Delhi NCR, and Hyderabad account for 77% of India’s Grade A office stock.
- Samantak Das
- Rohan Sharma
Real estate has moved from an economic commodity definition to a responsible service offering that has the ability to positively impact society and communities by bringing an accretive change to its occupants’ experience with their built environment. Social justice is now key to any interaction that a person may have with his/her environment, including real estate. Owners/managers of real estate also need to hold themselves to a social accountability standard where the users and occupants feel safe to practice their beliefs while also ensuring the protection of occupancy and other unalienable rights within the space.
With the rapidly transforming real estate landscape, for operational buildings to remain relevant in the current context, upgradation is a critical tool. It is worth mentioning that many ‘good to have’ and ‘aspirational’ categorized upgrades have now become a ‘must have’ in an environment of change where decarbonizing real estate is as crucial as maintaining its economic value.
Unlocking the potential of ageing real estate is no longer limited to standard valuation metrics. Iconic addresses and creating a holistic experience for the users are relevant to the urban regeneration discourse even as undertaking retrofits in sync with evolved occupier demands is now a hygiene factor. Building upgrades now need greater technology intervention across a wide spectrum to create more intelligent and smart buildings which can identify and troubleshoot through any operational issues.
As the workforce and the occupiers demand climate-responsible real estate from the building owners and investors, green upgrades will be key drivers of asset value as well along with the physical upgrades.
The post-COVID regulatory and corporate landscape has become quite attuned to real estate’s contribution in creating a more sustainable world. As the world and India make plans for a net zero carbon future, sustainability upgrades for older buildings to reduce operational carbon and retrofitting for services and amenities upgrades are key elements for futureproofing real estate assets. Creating a holistic human experience along with a positive social impact on the lives of the occupants and communities are key elements that will truly pave the way for a responsible built environment. And along the way, these interventions will also rejuvenate building ecosystems, create accretive value for older assets and give them a new lease of life.
Capex costs for building upgrades need to consider not only elevating the human experience through services and amenities but also now creating a more responsible asset in terms of emissions and impact on the environment and community as a whole. Upgrade costs will need to consider not only age-appropriate upgrades to buildings but also adding sustainability and inclusivity features for the asset to enhance its economic value while also making a positive impact on the environment and society. This will truly create a resilient, future-proofed asset.
- India’s biggest cities in terms of operational Grade A office stock (Bengaluru, Mumbai, Delhi NCR and Hyderabad) are also the most in need of substantial capex spends to upgrade their ageing buildings. In a world envisaged to be net zero carbon in the future, upgrades are needed for nearly 61% of the total operational Grade A office stock across these cities.
- The total investment needed stands at INR 233.4 billion for over 347 mn sq ft of Grade A office stock across the four biggest office markets in the country.
- Bengaluru: 70 mn sq ft of total Grade A office stock in Bengaluru is more than 11 years old (>100,000 sq ft), with 65% of it under the non-certified category. This offers significant potential for asset futureproofing through design, material, and technology upgrades.
- Mumbai: 103 mn sq ft of Grade A office stock in Mumbai is over 6 years old (>100,000 sq ft), with 63% currently non-green certified. This project basket post upgradation could see rental growth of 25-40% based on comparable, certified projects’ performance.
- Delhi NCR: Around 46.7 mn sq ft of current operational Grade A stock is more than 11 years old (>100,000 sq ft) and a significant 62% of this stock is non-certified. Investments on building and green upgrades for such projects are likely to fetch rental premiums of 30-45% in line with projects of similar age but upgraded already, are able to command.
- Hyderabad: Around 20 million sq ft of Grade A office stock in Hyderabad is non-green certified and was completed more than 6 years ago (>100,000 sq ft). Green-certified and upgraded projects of the same vintage command rental premiums of 11-16%, indicating the potential value accretion post-upgradation. Around 27.2 mn sq ft of nongreen certified office stock completed within the previous six years (>100,000 sq ft) has a similar potential of 13% rental enhancement post the relevant upgrades.