For decades, the global economy and its stakeholders have always looked at commercial real estate as a lucrative asset class, owing to the rise in yields and capital gains. Amidst the ups and downs in CRE across the Globe, the Indian CRE market is continuing to demonstrate strong resilience and moving on a growth trajectory.
Since the CRE sector exhibits a dynamic landscape, catering to the diverse needs and preferences of its customers, it has attracted significant investments of a whopping $5.4 billion, stronger than pre-pandemic year 2020. Out of this, the office sector alone has drawn $3 billion, recording a 53% increase from the previous year.
Despite a remarkable growth outlook, the owners and investors of commercial properties deal with the most pressing challenges such as under-utilization of the space, making it a non-performing or a stressed asset.
Major factors affecting the performance of any commercial asset are economic factors, new infrastructure, and technological advancement across various businesses and govt. policies and regulations. Beyond the above, one of the critical aspects for any CRE to be a performing or a non-performing depends upon how it is located, built managed and presented as an enabler to its prospective consumer.
Redevelopment/refurbishment of a non-performing property:
In the ever-evolving landscape, despite certain factors contributing to stressed properties, their strategic utilization is imperative for the sector’s sustainability. With significant changes in market trends, the refurbishing of commercial properties emerges as a strategy to revive underutilized spaces.
As urban spaces continue to become denser, redevelopment of existing properties can greatly improve the utilisation and hence the performance of the same. Strategies like demolition and rebuilding of an outdated structure to a modern structure with technology equipped to meet current demand. Increasing the consumable area with the latest permissible guidelines can also increase the performance of a particular asset.
With greater emphasis on making the space usable, rebuilt properties focus on adopting high standards of maintenance that were once neglected, making the property undesirable for users. Redevelopment of such spaces attracts potential tenants, offering lucrative rentals and capital appreciation to investors.Â
Further to embrace sustainability, CRE developers notably focus on adaptive reuses of the spaces i.e. converting the existing under-utilized or non-preforming structures into a new space with fresh purpose. This approach not only preserves the architectural community but also aligns well with the growing demands of customers and the market.Â
The refurbishment of commercial spaces also inclines towards mixed-use developments to deliver unique market experiences. Considering the transformation in corporate work settings, many corporate buildings are converting or leasing out their floors to build co-working spaces and many unattended retail spaces are strategically offered to be used for office.
This is driven by the need to foster a collaborative work culture, supplemented with modern amenities to meet the growing demand for commercial spaces. As consumer preferences are diversifying at a fast pace, refurbishing of non-performing commercial properties has emerged as a solution for investors and owners to recoup losses.
Refurbishment Strategies like upgrading the infrastructure of the building, tech integration, adopting a sustainable environment, and aesthetic enhancements of the common area and interiors of the building. Interior refurbishments of any asset making it ready to use is also a vital aspect towards enhancing the performance of the asset.
However, regulatory requirements including the environment and zoning regulations make the process complex. Furthermore, legal aspects such as seeking relevant licences from real estate and government authorities add another layer of complexity, making the entire process rigorous and compliance-heavy.
Having said that, to leverage the perks of owning a redeveloped or refurbished commercial property, considering professional advice can help navigate the process with due diligence, eliminating multifaceted challenges and ensuring the sustainability of the property.
Conclusion:
By adopting the above strategies, a non-performing asset has a very high probability of having an increased user demand and hence increased occupancy, user satisfaction, higher asset values and higher rental yield, operational cost saving, improved market position, better compliance and safety of the asset, in turn making it a performing asset.