COMMERCIAL OFFICE SECTOR HEADED FOR POSITIVE DISRUPTION

Bengaluru, May 4, 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-WORKING CENTERS GROWING RAPIDLY WITH ORGANIZED PLAYERSENTERING THE MARKET

To tap into the growing demand for office, several globaland Indian co-working players are creating stock in the top cities. Global andlocal companies are competing with each other to offer the best proposition toclients by offering best practices in the industry. Co-working spaces areevolving, driven by the changing needs of their occupiers to increasecollaboration and productivity.  Although, Bengaluru, Delhi-NCR and Mumbaisee the highest concentration of co-working centres, Hyderabad, Chennai andPune 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-day co-working spaces are becoming importantgiven that start-ups are mushrooming across sectors and businesses as India’smillennial workforce increase in size and becomes increasinglyentrepreneurial.  This workforce look for spaces that can inspirecreativity, provide the means of collaborating with others and keep pace withchanging preferences and needs. Increasing mobility and connectivity also meansthat the current and future workforce does not want to be physically rooted toa few square feet of space,” Anshul observed.

He added, “Co-working is becoming an attractiveoption for huge corporations and established start-ups as well, where they takeup space for specific initiatives. Large occupiers are relocating someof their teams into co-working offices, albeit for relatively short periods forneeds such as temporary spaces, project / site offices or incubation of newteams/divisions. Going ahead, we foresee companies adopting hybrid models,under which companies will have a combination of co-working space for somefunctions, as well as traditionally leased offices as part of their officeportfolios.


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