COMMERCIAL & FLEX SPACES MARKET DYNAMICS
The change in occupier’s demands has offset the rise of cost-effective and flexible real estate solutions and has opened new possibilities for various businesses. As per Arpit Mehrotra, Managing Director, South India – Colliers, despite commercial space occupancy fluctuations and a previous slowdown, market trends indicate a strong rebound, with an optimistic outlook, especially for the South India IT hubs real estate. “In recent years, there has been a noticeable cycle in both residential and office markets with varying levels of engagement. However, the market is now gradually gaining traction as people are increasingly visiting properties and making decisions, especially for well-located offerings,” he added. Sharing his perspective on the resurgence of conventional and flexible approaches in 2024, Mahesh Khaitan, Director, Sattva Group, articulated, “In 2012, Andhra Pradesh split into Andhra and Telangana, leading to significant growth in Hyderabad's real estate market. The COVID-19 pandemic provided a temporary break, but the real estate sector as a whole quickly rebounded to pre-pandemic levels in 2023. Cities across India experience similar growth trends driven by strong demand and supply in prime locations. In Bengaluru for instance, the market hit 15 million square feet in 2023. Going forward, the first half of the year is expected to break all previous records for real estate growth in the country. In addition, the flex office market currently occupies about 9-10% of the total area and is expected to reach 25-26% by 2030. As a result, numerous opportunities will emerge, allowing us to capitalize on this trend.” Fancy George, CEO, Thomas Workplace Design added, “The shift towards flexible working environments highlights the importance of creating adaptable, multifunctional spaces. Incorporating sustainability and circularity in design ensures materials can be reused, limiting waste and promoting environmentally responsible practices. Assessing the end-use cycle of designs and understanding their potential for repurposing are critical steps in the planning process that also enhance the cost efficiency of the real estate cost for the builders and occupiers.” Elaborating on alternative assets and his experience in flex-workspace market investments, Amit Goenka, MD & CEO, Nisus Finance, stated, “Bengaluru, India's tech city, has taken the lead in shaping post- COVID office space and commercial real estate (CRE) comeback. Globally, the CRE market has experienced reduced demand and rent, but India and emerging Asian economies maintain 70% occupancy or higher. Indian CRE is on track to add 400- 500 million square feet over the next decade. Flexible (flex) spaces have grown swiftly, boasting 2,500 centers and 650,000 seats with a potential rise to 1 million seats in three years. The concept addresses contemporary workplace needs, prompting investors to allocate capital towards alternatives like co-working spaces and private REITs. It is projected that India's alternative market could match the size of its mutual fund market in seven years. Investments in Alternatives Investment Funds (AIF) are also increasing rapidly, indicating a dynamic change in capital allocation.” THE SECTORAL TRANSFORMATIONS Elaborating on the industry's evolution, Mahesh Khaitan said, “Technological progress has driven the adoption of sustainable construction methods and green certifications across industries. Emphasizing artificial intelligence, customer satisfaction, and adaptability to market shifts will be crucial for future success in the realm of commercial real estate.” Briefing on how the post-pandemic world has changed in terms of design, environment, and sustainability, Fancy George, CEO Thomas Workplace Design shared, “Post-pandemic, there's a growing emphasis on experiential design involving collaboration between architects, developers, financiers, and budget decision-makers. This shift requires early discussions with occupiers to provide suitable spaces. Presently, everyone demands workplaces to adhere to harmonized guidelines with ESG aspects and sustainability goals. This focused effort is a significant improvement compared to the past when they were merely desirable rather than essential.” Commenting on the changing financial landscape Amit Goenka stated,“Global construction costs have surged, yet stable yields and rising rents persist in specific regions. Fractional investment growth in commercial real estate and SEBI-approved MSME REITs will contribute to asset democratization and support the rising demand for Global Capability Centers in India.” THE OPPORTUNITIES India holds the second-highest return to office rate after China, with increased high-quality talent challenging the previous low-quality reputation. Despite currency fluctuations and cost challenges, India still offers significant opportunities due to its competitive rental rates and cost arbitrage. According to Mahesh Khaitan there is a significant pressure on developers, as they face thin margins and depend on partnerships for the necessary investments. “The Reserve Bank of India's interest rate decisions may present challenges, while private equity and REITs provide financial support. With several REITs in the pipeline, small investors can also participate, benefiting everyone involved. In recent times, numerous Global Capability Centers (GCCs) have emerged in India, creating a significant demand for flexible office spaces in sectors like Pharma and Banking, Financial Services and Insurance (BFSI). Flex office spaces cater to the changing needs of new companies testing the market in India, providing them with the adaptability for future growth. Consequently, this model proves to be the optimal solution for such businesses driving the growth for flex offices.” Fancy George shared her thoughts on how thoughtful design choices can facilitate a smoother transition back to the office, “Neurodiversity in the workplace is an essential topic often overlooked. It refers to the diverse neurological experiences and abilities of employees across different age groups. Inclusive workplaces boost wellbeing and collaboration through neuroinclusion and hiring specific consultants is a helpful step towards designing workspaces that would smoothen the process of bringing employees back to the offices.” Arpit Mehrotra agreed, “As space providers the goal must be to create environments that cater to every individual's unique needs and thus facilitate return of employees, making it a more convenient place for work and for social interactions with colleagues.” Amit Goenka added, “Flexible office designs contribute significantly to enhancing a workspace's value. Companies are adopting various strategies, including special events and family-oriented activities, to attract employees and create an engaging environment. A community atmosphere with increased amenities is fostering positive employee sentiment towards returning to the office.” PROJECTED MARKET LANDSCAPE IN 2024 Expressing his perspective on the anticipated market landscape in 2024, Mahesh Khaitan stated, “In 2024, India's real estate market is projected to see substantial growth in both commercial and residential sectors due to increased demand from top e-commerce companies. The first half of 2024 will be a significant period for the market, with companies planning major expansions in cities like Bengaluru. This growth will also positively impact the residential real estate sector, as well as emerging markets like organized co-living spaces. Overall, H1 2024 looks promising for multiple sectors within Indian real estate.” Fancy George added, “The younger generation is increasingly focused on sustainability and recycling. Innovative practices, such as constructing with waste materials, emphasizing the importance of embracing a zero-waste mentality and circular economy for everyone will be the highlight of commercial real estate development.” Arpit Mehrotra said, “For commercial real estate, the term "circular" aptly describes the world's trajectory as evidenced by the $2.9 billion investment in commercial real estate through September, with further growth anticipated in the coming year.” Amit Goenka was of the view that there are significant obstacles to new capital investment in the global real estate market, especially in Europe and the US. “Portfolio challenges, high-interest rates, and geopolitical issues contribute to hesitancy among international investors. While there is a potential for investment within the APAC region, caution is advised due to factors such as an unstable regulatory environment and uncertain political developments. These concerns could lead to investors waiting for a more opportune moment before committing their capital.” The COVID-19 pandemic provided a temporary break, but the real estate sector as a whole quickly rebounded to pre-pandemic levels. Cities across India have experienced growth trends driven by strong demand and supply in prime locations The business landscape has expanded beyond just a few major players. Small and medium-sized enterprises (SMEs) are increasingly occupying smaller spaces, with large corporations shifting towards a more compact approach. This creates significant opportunities in both consumption and capital investment- Amit Goenka, Nisus Finance Many organizations focus solely on the valuation game, which can present challenges. However, it is crucial to consider all aspects of business from sustainability, employee wellness to property management for profitability- Fancy George, Thomas Workplace Design As the demand for quality assets in core market areas grows, so does the emergence of new operators in flexible and co-working spaces, providing a wide range of prospects for various stakeholders- Arpit Mehrotra, Colliers. The recent denotification circular regarding SEZs will positively impact the developers helping to fill vacancies as well as benefiting banks. This change aligns with the recent 10% increase in REIT value, indicating progress in the SEZ areas- Mahesh Khaitan, Sattva Group
Tags : Amit Goenka Nisus Finance Fancy George Thomas Workplace Design Arpit Mehrotra Colliers Mahesh Khaitan Sattva Group