COMMERCIAL OFFICE SECTOR HEADED FOR POSITIVE DISRUPTION WITH CORPORATIZATION

Bengaluru, May 5, 2017- The Indian real estate is on the cusp of change as the commercial office segment moves closer towards corporatization, according to RICS and Cushman & Wakefield report titled “Commercial Office Real Estate: Positive Disruptions- Beacons of Change”

The report was released today at the RICS Real Estate Conference 2017 – Commercial Real Estate: Positive Disruption, Beacon of Change- with Cushman & Wakefield as research partner for the conference. According to the report, three major forces are likely to disrupt the way commercial office market functions, albeit in a positive manner - changes in economic policies of major economies in the world, changing ownership pattern and the shift towards new commercial tenancy models such as Co-working.

Anshul Jain, Managing Director, India, Cushman & Wakefield at the launch of the report said, “Overall, while there will be certain short-term headwinds emanating from global policies, India is relatively well-insulated. India is firmly on track to become an economic powerhouse with strengthening GDP, better business environment and investor-friendly policies by the government. 

Sachin Sandhir, Global Managing Director – Emerging Business, RICS said, “The biggest change in the sector will be brought about by its institutionalization. As institutional investors gain ownership in commercial office assets, better corporate governance and best professional practices are slowly being adopted by the commercial real estate sector. With REITs coming in, we will see an increased demand for professional valuers of REIT assets. Also, professional management and valuation of properties as per international standards will become the norm, steering the sector towards institutionalization, especially once REIT’s are listed and the Real Estate Regulation Act is fully enforced,”  

Undoubtedly, India is one of the fastest growing economies in the world today. Consequently, political and other regulatory reforms in the world economy and developed countries will have an impact on the Indian economy too. Three such major global events impacting India are the implementation of protectionist policies in countries such as the US, Australia and Singapore, slow Chinese economic growth and the BREXIT. While there is likely to be some impact on leasing in certain sectors, the Indian CRE market will continue to see healthy expansion activities of occupiers. It is expected that the IT-BPM sector, for instance, would see some dip in office leasing not so much due to protectionist policies in US, but from increased automation in the sector as companies look at protecting and increasing their revenues and profit margins. Sectors such as BFSI, Fintech, Consulting, Pharma and other manufacturing will garner some momentum in leasing. 

FOREIGN INVESTMENTS TO SPEED UP SECTOR’S INSTITUTIONALIZATION

Commercial office real estate is expected to see greater participation of foreign institutional investors as they continue to pick up leased and under-construction assets in India. The investment scenario is now marked by a combination of sovereign/pension funds with a long-term investment focus, along with private equity funds that have a typical 7-8 years investment horizon. This is leading to a marked shift in ownership pattern with institutional investors now being amongst some of the largest owners of office assets.

Long-term vision of foreign pension and sovereign funds, greater investment platforms and JVs are establishing stringent corporate standards and management. Adhering to international project standards during construction is likely to be a game-changer with increased focus on quality of developmental assets and professionally-managed developers. 

CO-WORKINGCENTERS GROWING RAPIDLY WITH ORGANIZED PLAYERS ENTERING THE MARKET

To tap intothe growing demand for office, several global and Indian co-working players arecreating stock in the top cities. Global and local companies are competing witheach other to offer the best proposition to clients by offering best practices inthe industry. Co-working spaces are evolving, driven by the changing needs oftheir occupiers to increase collaboration and productivity.  Although,Bengaluru, Delhi-NCR and Mumbai see the highest concentration of co-workingcentres, Hyderabad, Chennai and Pune too are seeing some activity.

TOP CO-WORKING DEALS in 2016

Period

Company

City

Area leased

Q4 2016

WeWork

Mumbai

180,000

Q4 2016

CoWrks Business Centre

Bengaluru

170,000

Q1 2016

Red Bricks

Hyderabad

150,000

Q3 2016

WeWork

Bengaluru

140,000

Q4 2016

Indiqube ETA

Bengaluru

74,000

Q3 2016

Indiqube Omega

Bengaluru

60,000

         Source: Cushman and Wakefield Research

Day-by-dayco-working spaces are becoming important given that start-ups are mushroomingacross sectors and businesses as India’s millennial workforce increase in sizeand becomes increasingly entrepreneurial.  This workforce look for spacesthat can inspire creativity, provide the means of collaborating with others andkeep pace with changing preferences and needs. Increasing mobility andconnectivity also means that the current and future workforce does not want tobe physically rooted to a few square feet of space,” Anshulobserved.

He added, “Co-workingis becoming an attractive option for huge corporations and establishedstart-ups as well, where they take up space for specific initiatives.Large occupiers are relocating some of their teams into co-working offices,albeit for relatively short periods for needs such as temporary spaces, project/ site offices or incubation of new teams/divisions. Going ahead, we foreseecompanies adopting hybrid models, under which companies will have a combinationof co-working space for some functions, as well as traditionally leased officesas part of their office portfolios.


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