Bur­geon­ing Com­mer­cial Real-es­tate

Post the global fi­nan­cial cri­sis, In­dia wit­nessed a shift of cap­i­tal to core as­sets in com­mer­cial real-es­tate and IT parks and the last two years saw the pan-in­dia of­fice va­cancy at its low­est in five years. Re­alty Plus anal­y­ses the com­mer­cial real-es­tate

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Ac­cord­ing to an IBEF study, Mum­bai, NCR & Ben­galuru ac­count for 60 per cent of to­tal of­fice space de­mand in In­dia. In the last three years or so, the net ab­sorp­tion in the top eight cities (Ahmed­abad, Ben­galuru, Chen­nai, Delhi NCR, Hy­der­abad, Kolkata, Mum­bai and Pune) has con­sis­tently crossed the 30 mil­lion sq.ft. mark. Also, busi­ness ac­tiv­ity is now shift­ing from CBDS (Cen­tral Busi­ness Dis­tricts) to SBDS (Spe­cial Busi­ness Dis­tricts), and Tier 1 to Tier 2 cities. Sachin Sand­hir, global Man­ag­ing Di­rec­tor-emerg­ing Busi­ness, rics com­mented, “There is a lot of in­sti­tu­tional cap­i­tal chas­ing Grade A space. In 2017, in­flows into the com­mer­cial of­fice space will see a four-fold rise touch­ing a new peak of Rs 240 bil­lion or US$ 3.5 bil­lion from Rs 63.8 bil­lion in 2016. On the sup­ply side, there is a short­age of grade A of­fice space which is less than half of the cur­rent of­fice stock across top eight cities at 280 mil­lion sq.ft. across Gur­gaon, Thane, Navi Mum­bai, Salt Lake (Kolkata), Sec­ondary Busi­ness District­ben­galuru, White­field (Ben­galuru) and Hin­je­w­adi (Pune).”

the Oc­cu­piers

There is an in­crease in leas­ing ac­tiv­i­ties with both do­mes­tic and in­ter­na­tional oc­cu­piers in­creas­ing their of­fice port­fo­lios. In­for­ma­tion Tech­nol­ogy-busi­ness Process Man­age­ment (IT-BPM) com­pa­nies con­tinue to dom­i­nate com­mer­cial of­fice leas­ing ac­tiv­ity, their share has dropped to 50% in com­mer­cial of­fice leas­ing ac­tiv­ity in top In­dian cities from 65-70%.

Around 30% of the leas­ing ac­tiv­ity in the IT-BPM space is di­rectly by Us-based com­pa­nies. A high rental growth was seen mostly in South cities like Ben­galuru, Chen­nai and Hy­der­abad where y-o-y change ranged be­tween 8-17% at some lo­ca­tions.

va­cancy lev­els in some cities such as Ben­galuru, chen­nai, hy­der­abad and Pune is around 5-10%. the av­er­age an­nual net ab­sorp­tion in 2016 was 34 mil­lion sq.ft. across top eight cities in in­dia.

Ben­galuru CBD has al­ways been the first pref­er­ence of BFSI and IT oc­cu­piers pri­mar­ily due to its con­nec­tiv­ity and prime lo­ca­tion. In spite of hav­ing lim­ited avail­abil­ity of of­fice spa­ces and sup­ply, it has wit­nessed 17% y-o-y rental ap­pre­ci­a­tion.the Ben­galuru Epip/white­field also has am­ple avail­abil­ity of large floor spa­ces and Grade A de­vel­op­ments at­tract­ing oc­cu­piers whereas, Elec­tronic City of­fers com­par­a­tively cheaper rents than other mar­kets of the city of­fer­ing large and su­pe­rior qual­ity of­fice spa­ces. Ho­sur Road too is an emerg­ing IT/ITES mi­cro­mar­ket in

Ben­galuru with cheaper rates mainly due to its lo­ca­tionin the pe­riph­eral area of the city and am­ple land avail­abil­ity.

Chen­nai CBD is pre­dom­i­nantly an IT mar­ket with BFSI, con­sult­ing com­pa­nies hav­ing their setup in Guindy, MRC Na­gar and Saligra­mam. In Q2 2017, Chen­nai Of­fice CBD ac­counted for 16% of to­tal ab­sorp­tion.omr Post Toll mi­cro­mar­ket in­cludes lo­ca­tions like Navalur, Sholin­ganal­lur and Pallavaram-tho­raipakkam Road which is pop­u­larly known as IT cor­ri­dor of Chen­nai and has ob­served 8% y-o-y rental growth.

DLF Cy­ber City is in Gu­ru­gram and is the top pref­er­ence of do­mes­tic and in­ter­na­tional oc­cu­piers due to its qual­ity of­fice spa­ces, DLF Cy­ber City has wit­nessed 12% y-o-y rental growth.

Hadap­sar mar­ket in Pune with projects such as Ma­garpatta city of­fer­ing large floor spa­ces is dom­i­nated with IT/ITES of­fice oc­cu­piers.

The SBD mar­ket in Hy­der­abad in­cludes HITECH City, Mad­ha­pur and Gachi­bowli that have 89% of to­tal leas­ing vol­ume due to su­pe­rior ameni­ties and rea­son­able rentals com­pared to other cities.

reit en­vi­ron­ment

Cur­rently, de­vel­op­ers in­cur huge cap­i­tal ex­pen­di­ture in com­mer­cial real-es­tate de­vel­op­ment which re­mains locked un­til the as­set gen­er­ates re­turns. But, through REIT, de­vel­op­ers can exit from the com­pleted as­set. REITS in com­mer­cial as­sets are at­trac­tive for in­vestors as their rental yield is as much as 8%. Presently, In­dia has a rent-yield­ing of­fice in­ven­tory to the tune of 537 mil­lion sq.ft. As sand­hir stated, “In­dia’s REIT po­ten­tial is quite large given the fact that about 229 mil­lion sq.ft. of of­fice space in the coun­try is REIT com­pli­ant. While REIT’S have not yet taken off in In­dia, REIT list­ings are ex­pected ei­ther this year or the next. In­ter­na­tional pri­vate eq­uity funds and real es­tate de­vel­op­ers such as Black­stone, Brook­field, GIC, Cananda Pen­sion Plan In­vest­ment Board and RMZ Corp are all con­sid­er­ing REIT list­ings.”

NEW trends

With the com­mer­cial real-es­tate mar­ket ma­tur­ing in In­dia, new de­vel­op­ment and us­age trends are gain­ing pop­u­lar­ity. Talk­ing of new ad­vance­ments,vipul Shah, Man­ag­ing Di­rec­tor, Pari­nee group stated, “A lot of de­vel­op­ers to­day are shift­ing base to crowd fund­ing to fund the con­struc­tion process of com­mer­cial and hous­ing projects.the trend of build­ing tech-savvy workspaces and mixe­duse for­mat of of­fice & re­tail to is steadily gain­ing mo­men­tum. Co-work­ing spa­ces and the free­trade ware­hous­ing zones are the new en­trants gain­ing pop­u­lar­ity in com­mer­cial real es­tate.

Co-work­ing spa­ces:

As the com­mer­cial real-es­tate mar­ket ma­tures in In­dia, new trends such as co-work­ing spa­ces are gain­ing pop­u­lar­i­ty­in­tier one and two cities as it is an af­ford­able op­tion for star­tups, small and medium en­ter­prises and for large com­pa­nieswho re­quire ad­di­tional space on a tem­po­rary ba­sis. While it still ac­counts for a small share of the over­all leas­ing vol­ume (around 2-3%), this con­cept is grow­ing in cities that have a start-up ecosys­tem such as NCR, Mum­bai, Ban­ga­lore, Hy­der­abad, Chen­nai, Ahmed­abad and Pune.

Crowd funded real-es­tate projects:

This con­cept in com­mer­cial real es­tate aids trend-set­ters raise funds to launch their ser­vices through the dig­i­tal podium. This pro­ce­dure in­cludes rais­ing petty amount of

a cush­man & Wake­field-rics re­search re­port (com­mer­cial of­fice real es­tate: Pos­i­tive Dis­rup­tions-bea­cons of change) re­leased in may, 2017 pre­dicts that the av­er­age com­mer­cial realestate sup­ply in the top in­dian cities will be 40-45 mil­lion sq.ft. per year un­til 2020 while av­er­age net ab­sorp­tion will be around 32-35 mil­lion sq.ft.

Reit list­ing will pave the way for in­sti­tu­tion­al­iza­tion of the com­mer­cial of­fice mar­ket. adop­tion of in­ter­na­tional val­u­a­tion and mea­sure­ment stan­dards will bring in much needed par­ity in the func­tion­ing of the mar­ket.

money on­line from var­ied peo­ple through­out the globe. This prac­tice in In­dia be­ing in its nascent stage, has an abil­ity to pick up well.

Of­fice-re­tail Com­plex:

A work­ing in­di­vid­ual ends up spend­ing al­most his en­tire day at work, re­tail ser­vices try and lo­cate them­selves in the vicin­ity or just within the busi­ness district. Var­i­ous re­tail clas­si­fi­ca­tions like recre­ational malls, high-end fit­ness cen­tres, tele­com ser­vices, spa, fi­nan­cial in­sti­tu­tions, restau­rants and cof­fee shops are look­ing pos­i­tively at this zone. This fa­cil­ity lends the re­tail­ers a dou­ble ad­van­tage of pay­ing lesser rents and also in­creases their ac­cess to their tar­geted seg­ment of of­fice-go­ers.

Tech-friendly Workspaces:

These tech­no­log­i­cal fac­tors in­clude ac­ces­si­bil­ity to de­vices, proper sys­tem for data se­cu­rity, wire­less con­nec­tiv­ity and up­grades, apps re­lated to busi­ness, con­fer­enc­ing and pre­sen­ta­tion com­pe­ten­cies to name a few. The aes­thet­ics fac­tor which was pre­vi­ously the main con­sid­er­a­tion is to­day tak­ing a back­seat to make way for tech­nol­ogy.

Ware­hous­ing:

This is an im­mi­nent and a promis­ing trend in the com­mer­cial real es­tate seg­ment. With the im­ple­men­ta­tion of govern­ment mea­sures like the goods and ser­vices tax (GST) the po­ten­tial of ware­hous­ing has only in­creased. These spe­cial zones lend tai­lored ware­hous­ing fa­cil­i­ties that help store the prod­ucts, prior to them be­ing shipped in a struc­tured man­ner. They are also clev­erly lo­cated and well net­worked, thus, of­fer­ing time and value ben­e­fits.

fa­cil­ity Man­age­ment

The com­mer­cial real es­tate space providers are in­vest­ing in tech­nol­ogy for en­ergy man­age­ment, build­ing con­trols, in­te­grated work­place man­age­ment sys­tems among other things. Fa­cil­i­ties man­age­ment is an­other grow­ing seg­ment. As shah puts it, “The last cou­ples of decades have per­ceived an enor­mous surge in non-tra­di­tional busi­nesses. The com­ing years will wit­ness a ma­jor trans­for­ma­tion with fo­cus flex­i­ble and col­lab­o­ra­tive workspaces.” Also, emer­gence of new tech­nolo­gies and in­no­va­tions are in­flu­enc­ing cost ra­tio­nal­iza­tion and pro­duc­tiv­ity op­ti­miza­tion. .

In­deed, an or­ga­ni­za­tion’s prop­erty is its big­gest ex­pense and there­fore, the com­mer­cial real-es­tate in­dus­try is in­creas­ing seek­ing pro­fes­sional ser­vices that help them achieve an op­ti­mum bal­ance be­tween peo­ple, phys­i­cal as­sets and tech­nol­ogy, with the in­tent to max­i­mize value and min­i­mize costs. tariq chauhan, group ceo, efs fa­cil­i­ties ser­vices elu­ci­dated, “Main­tain­ing the build­ing as­set with op­ti­mum ef­fi­ciency and longer life cy­cle can di­rectly en­hance the bot­tom line of the com­pany. Inar­guably, fa­cil­i­ties man­age­ment must be an in­te­gral part of the de­sign and con­struc­tion, span­ning con­tract man­age­ment, fi­nan­cial man­age­ment, change man­age­ment, hu­man re­source man­age­ment and health and safety, in ad­di­tion to core build­ing main­te­nance, util­ity sup­ply and do­mes­tic ser­vices (such as clean­ing and se­cu­rity).” The surge in in­vest­ment in com­mer­cial real-es­tate de­vel­op­ments has trig­gered an ur­gent de­mand for ef­fec­tive and qual­ity fa­cil­i­ties man­age­ment ser­vices. But, the global cul­ture of ser­vice ex­cel­lence is of­ten seen miss­ing when MNCS deal with lo­cal com­pa­nies who have in­ad­e­quately de­fined In­dian stan­dards for the in­dus­try.

chauhan ex­plained, “The com­mer­cial prop­erty own­ers pre­fer global and ex­pe­ri­enced cor­po­rate FM ser­vices providers who will cre­ate a com­pelling re­as­sur­ance for end-users, in terms of ex­pe­ri­ence and ser­vice de­liv­ery. How­ever, the con­stant de­mand to cut costs, in­crease prof­its and im­prove ex­ist­ing ser­vice stan­dards pose a ma­jor chal­lenge. Tan­gi­ble ben­e­fits of­fered by qual­ity fa­cil­i­ties man­age­ment ser­vices are es­pe­cially rel­e­vant in the cur­rent en­vi­ron­ment of re­gional fis­cal aus­ter­ity, as an in­te­gral tool for con­tain­ing and man­ag­ing build­ing man­age­ment costs.”

case stud­ies

Mindspace Mad­ha­pur (Hy­der­abad) by K Ra­heja Corp - Mindspace at Mad­ha­pur is a gated busi­ness park spread over 97 acres. De­signed by RSP Con­sul­tants, it serves as the hub for IT, ITES, Tele­com, Pharma, Biotech­nol­ogy and sim­i­lar busi­ness sec­tors. This com­mer­cial space pro­vides re­tail, hos­pi­tal­ity, food courts, en­ter­tain­ment hubs and pre­mium res­i­den­tial of­fer­ings, in ad­di­tion to SEZ and non-sez of­fice spa­ces. Mindspace Mad­ha­pur sports sewage treat­ment, en­ergy con­ser­va­tion tech­niques, so­lar power gen­er­a­tors an­dend to end waste man­age­ment sys­tem. Pi­ra­mal Re­alty first com­mer­cial project – Agastya Cor­po­rate Park in Kurla, Mum­bai sprawls over 16.25 acres and of­fers its oc­cu­pants 50,000 square feet. of land­scaped green­ery amidst a dy­namic, tech­nol­ogy en­abled en­vi­ron­ment. In­te­grated with green­ery are the mod­ern workspaces and fa­cil­i­ties that in­clude a crèche, gym­na­sium, games room, mas­sage room and large ter­races that en­hance em­ployee ex­pe­ri­ence.

Sachin Sand­hir

VIPUL SHAH

TARIQ CHAUHAN

MINDSPACE MAD­HA­PUR

PI­RA­MAL AGASTYA

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