10% growth in commercial, retail rentals in past 3 yrs: Report

By Accommodation Times Bureau
New Delhi

CRISIL fine-tunes criteria to reflect changing dynamics CRISIL’s analysis of high-grade commercial and retail properties that it rates, spanning over 23 million square feet, shows steady increase in demand in the recent past, with rising rentals and low vacancy rates at 5-10% over the last 3 years.

Average rentals have risen 10% in the past 3 years for Grade A properties rated by CRISIL. Consequently, the asset value of 15 large deals executed in the sector in the past 2-3 years has touched Rs. 22,000 crore.

The established track record of the sector, greater presence of global private equity funds and improved quality of management gives CRISIL higher confidence regarding the stability of this sectors’ cash flows. CRISIL has accordingly fine-tuned its criteria to reflect the same.

Sachin Gupta – Senior Director, CRISIL Ratings, said, “Typically, well managed, high-quality properties with average tenancy of 3 years and stable occupancy of 90% provide good cash-flow visibility.”

The credit profile is further supported by the low cost of debt funding available for these high-quality realty assets. This is reflected in the reducing spreads for loans to these assets by 75-100 basis points over the bank benchmark rates.

Such a milieu would continue to draw investors to this realty segment over the medium term, especially private
equity funds and property managers.

Apart from better management of assets, these players bring in improved
financial discipline with structured escrow accounts and reduced cash-flow leakages.

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