As companies expand, office space is attracting investment in India
Availability of residential housing and the large number of infrastructure projects planned make MMR attractive to both end-users and investors.
The Asian market is driving global economic growth and India is emerging as the world’s preferred outsourcing hub. According to the CBRE 2017 Asia Pacific Occupier Survey report released last week, multinational as well as Asia Pacific-based companies have aggressive expansion plans for India and China over the next three years. Interestingly, in the Asia Pacific region, more than 80% of Indian respondents plan to hire more people in the next three years. This reflects India’s growing economy, steady progress in enacting regulatory reforms and booming outsourcing and ITES sector.
The report took responses from over 450 multinational companies and real estate consultancies and suggests India’s commercial real estate will get a big boost with these expansion plans.
The major sectors represented included banking and finance (32%), technology and telecommunications (14%), insurance (12%) and manufacturing (12%). “Multinationals’ relentless focus on driving down costs has fuelled Asia Pacific’s booming outsourcing sector,” says the survey.
More office space
Anuj Puri, chairman and country head, of JLL India says that India’s macroeconomic outlook has been resilient since 2014, leading to the entry of new foreign firms and expansion of existing firms. All of this has resulted in a demand for office space. While 30 million square feet were absorbed annually from 2012 to 2014, the figure rose to 35 million in 2015.
Puri attributes the jump to the fact that many companies are adopting an aggressive expansion strategy, particularly after the slow pace of previous years. New players in ecommerce, healthcare and technology are driving the numbers up as well, he adds.
Vacant spaces are currently at a seven-year low of 13% - a perfect opportunity for rents to rise faster. Puri says the rise is particularly fast in lower vacancy markets such as Pune, Bengaluru and Hyderabad. “These markets are more preferred by the leasing giants within IT-ITES sector,” he explains. “Few other sub-markets such as Mumbai suburbs, Gurgaon in the National Capital Region and Chennai’s suburban business districts are also witnessing moderately higher increase in rents.”
Of all office leases, IT-ITES continues to be at the top with a 35-40% share. Experts say this dominance is likely to continue for some years. But Puri believes that with initiatives such as Make in India, relaxed FDI norms in defense manufacturing and a gradual progress towards a uniform taxation through GST and Skill India that figure might change. “We could see the share of manufacturing rise in the medium term, from the meagre 15% it is today.”
Workplaces on the fringe
While Mumbai has traditionally been a hub for financial services, it is strongly emerging as an IT and knowledge hub, especially with huge IT parks coming up in low-cost regions like Navi Mumbai and Thane. In Navi Mumbai, as much as 76% of commercial space is already occupied by IT/ ITeS players.
“Micro-markets such as Malad, Goregaon and Powai are established commercial centres,” says Gautam Saraf, managing director, Mumbai, Cushman & Wakefield. But Navi Mumbai alone is expected to witness average absorption rate of approximately 1.2 million square feet over the next three years, he adds. Major companies like Capgemini, WNS, Hexaware, TCS and Accenture expanding their operations. “The rentals in Mumbai are in the Rs40-50 per square foot, which is less than a dollar, with good scope for appreciation in the years to come,” Saraf says.
Dharmesh Jain, CMD, Nirmal Lifestyle and president, CREDAI-MCHI, believes that Mumbai has favourable government policies, skilled IT resources and excellent infrastructure facilities, making it one of the top destinations for outsourcing. “The outlook for commercial real estate for 2017 is likely to be vigorous with increasing demand,” says Jain. Commercial real estate in Mumbai and nearby areas is being driven by outsourcing services in a big way. “Waking up to this opportunity, Mumbai’s property developers have started to fully comprehend the workspace specifications required for IT, BPO and KPO services, which will drive the market for years to come,” says Jain.
Where offices grow, homes grow too
The strong growth in commercial office market and expected buoyancy has spurred substantial demand for residential apartments. In Navi Mumbai, the IT boom has given a huge boost to the residential market in nodes near the offices like Airoli, Ghansoli, Vashi, Koparkhairane and Nerul. “Availability of affordable residential supply, combined with promising prospects in terms of planned infrastructure and commercial office market are expected to further attract both end-users and investors in this region,” says Saraf. “This coupled with a robust retail growth, is helping fuel the revival of the residential real estate market.”