OFFICE REAL ESTATE DYNAMICS DEMAND & SUPPLY DRIVERS
Ramesh Nair, CEO | India & Managing Director, Market Development | Asia, Colliers setting the tone of the conversation started, “There is a lot of worry about the incoming recession globally. India may not be in a recession but we will definitely see a slowdown as the global economy slows down. This may have a domino effect on the office space consumption and investment. Moreover, even today overall re-entry rate of employees in most cities is between 30-40% which mean 60-70% of all offices are lying vacant” Rajeev Sengupta, Consultant Corporate Real Estate, HDFC Bank Ltd expressed, “With the US recession coming in there will be a squeeze of jobs and the requirement for outsourced resources will come down. The working systems are evolving to hybrid and agile working. Pandemic made the companies realise that work from any location is possible. While remote working is possible for some functions in the IT sector, BFSI sector is seeing consistent demand for office space. Also the design layout is changing and densities are going down in offices, needing larger office areas.” Ambar Maheshwari, Chief Executive Officer, Indiabulls Assets Management Ltd agreed, “US and Europe are pretty much on the path of recession. In India, there won’t be a recession given the definition of a recession is two-quarters of negative growth but India’s projected growth is between 5.5% and 6.5% for next financial year, next calendar year. Commercial real estate, contrary to popular opinion, will keep seeing growth. Employees will be coming back to work and given the growth, IT companies in India went through earlier will require office spaces. In my opinion, the next calendar year would be better for corporate leasing compared to what has been this year.” Vijay Rajagopalan, Head – Leasing, Nucleus Office Parks concurred, “Year 2019 was the record year for corporate real-estate. The year 2021 was a whitewash but there was glimmer of hope which started in the second half of 2021. The resurgence of the sector happened in 2022 despite all odds. Indian companies like banks, law firms, consulting firms, engineering, and manufacturing expanded their work spaces. Managed office spaces alone accounted for 15% of the net absorption across India. After IT and ITeS, BFSI segment was the biggest occupier of office spaces. Absorption is looking good, the economy looks good so definitely the vacancy has to come down.” Himanshu Shah, Head of Leasing - West Region, Intellion Offices By Tata Realty added, In the next two years Mumbai will see about 12mn sq ft of supply coming in and Pune will also see 11-12 mn sq ft of supply. What changes between these two cities is the parameters, the contribution, the demographics. Mumbai is driven by BFSI and flexi space operators which contributes to about 50% of the space absorption. Whereas in Pune IT/ITES, flexi space operators contribute about 50%, followed by R&D and start-ups. The distinction between these two cities is infrastructure, the influx, transport and the cost of living. As per one of the data, Pune is 35% cheaper compared to Mumbai in terms of living. Rental spaces are cheaper. In coming years Pune will do better than Mumbai and will be a tough competition to Hyderabad.`` Karandeep Singh Nanda, Head of Operations - West Region, Embassy Services Pvt Ltd spoke about another important development, “ESG is now a genuine phenomenon in the business pursuit and for developers. There is lot of investments in infrastructure upgrades whether it’s MEP or energy efficient façade glasses, besides there is lot of focus on making the buildings disability friendly, solar energy powered and recycling and biodiversity.” THE OFFICE SPACE INVESTING PATTERN As per Amber Maheshwari office space will continue to be a favourite for investors. “For foreign investors, investing in a completely built leased income-producing asset, does away with development risk, marketing risk, regulatory risk and no approvals, permissions required. Foreign investors are wary of risks in India versus the return. Going forward, a completed office will be a mainstay because from a risk-return standpoint for a country like India they are more comfortable taking a bet on a fully leased out office.” Karandeep Singh Nanda talking about REITs said, “Most of the investors are confident with REIT and the reason for this is simplicity of investing so they can get the share in value proposition and rental incomes without having the hassle of buying properties or managing or selling properties. Almost 6-8% annual returns on dividends can be expected.” Rajeev Sengupta pointed out the challenges, “We have done projects where the price escalation has been 15-22% for the building itself and Interiors cost going up by 8-10% in the last 12 months, impacting project deliveries. Lot of our infrastructure is dependent on generators, air-conditioning, and servers where chip non-availability has become a hindrance.” Vijay Rajagopalan added, “Infrastructure is the backbone of economic growth and development and India is on the upswing but the challenges include uncontrolled urbanisation, congestion and lack of quality roads, connectivity and problem of integration of various infrastructure. If we want to be a trillion-dollar real-estate then we have to push these boundaries and build these global cities.” Himanshu Shah shared the recent developments in Mumbai, “There are seven metros proposed in Mumbai at different lines. Once these metros are completed, the whole dynamics of real estate and the way we work will change completely. The game changer for Navi Mumbai will be easy accessibility to the Western suburbs of Mumbai.” Ramesh Nair concluded the conversation on a positive note, “India seems to be away from a recession scenario and next year as per industry analysis is set to break office space absorption record in the country. Additionally, with remote and hybrid working becoming a norm, the hub and spoke model of office spaces and satellite towns will become a prominent aspect in the developer's portfolio.” “Close to 70-80 billion dollars FDI has come into Indian real estate over the years. Most of that has gone into the offices. Now industrial and data centre segment are catching the fancy of global and domestic investors.” Ramesh Nair “In the South, the major office space market Bengaluru is doing good, Chennai and Hyderabad are fast catching up. In the West, Mumbai commercial real estate is doing steady business and Pune has come up very well as a competitor for both Hyderabad and Chennai.” Himanshu Shah "Industrial from a volume stand-point will attract investment sporadically or a smaller percentage. It has the potential given India is a developing country where e-commerce and consumption is going up. The industry is the next investment alternative for institutional funds after offices.” Amber Maheshwari “For an occupier, apart from the world-class building and surrounding infrastructure, easy traffic access is equally important. That is the reason office business parks that offer facilities within and outside the building are being favoured by the occupiers rather than standalone office buildings.” Vijay Rajagopalan “REITs are less volatile as investment compared to mutual funds and offer better returns than FDs for a retail investor. There is a lot of cash flow backed by institutional financing and REITs in commercial spaces are doing well in terms of retail investors.” Karandeep Singh Nanda “For investors, investing in core office buildings takes care of the multiple risks associated with the compliance, market and development risks. For occupiers, the ESG, quality construction and global Green standards are the focus.” Rajeev Sengupta
Tags : office real estate dynamics demand supply drivers Ramesh Nair CEO | India & Managing Director Market Development | Asia Colliers Rajeev Sengupta Consultant Corporate Real Estate HDFC Bank Ltd Ambar Maheshwari Chief Executive Officer Indiabulls Assets Management Ltd Vijay Rajagopalan Head – Leasing Nucleus Office Parks Himanshu Shah Head of Leasing - West Region Intellion Offices Karandeep Singh Nanda Head of Operations - West Region Embassy Services Pvt Ltd