Office-lease Trends in Tier II cities

As foreign investments in the IT and BPO sector keep flowing to India, there is a fair demand for office spaces which provides an international level of ambience. In Tier I cities like Delhi and Bangalore where developers have been catering to the demands for swanky office spaces the Tier II cities are no less comparable in design and quality.

The cost advantages in the realty sector presently lies with the Tier II cities where the realty prices are less in comparison to the metros due to easy availability of land and the government’s promotion of SEZs as more investors enter the market, the lease trends show an increase by 25% - 30% in Tier I & II cities over the next 3 years.

Commercial and Residential properties in India

There is a real need for new construction to keep pace with India's robust 7% economic growth. The commercial and residential real estate market in India is valued at about $50 billion now, and is expected to grow 25% annually. Rental income yields are more than 12% in India, compared with 9% in China and 5% to 8% in developed markets. Pent-up demand could increase that return. Analysts see an annual shortfall of 20 million housing units through 2011, and they say India will see 75 million sq. ft. of retail space by 2007. 3 years ago, India, with 1 billion population, had just three shopping malls. Now investors are planning 250 new centers by 2008. Some says, it all amounts to "the biggest growth story in organized retail ever witnessed on Planet Earth.

Overseas companies are taking advantage. Last February, India adopted a regulation allowing foreigners to bid on Indian construction projects without local partners. (They still cannot own property or buy and sell existing buildings.) Since then a half-dozen foreign builders, including New York-based Tishman Speyer, have launched projects. Atlanta's Portman Holdings, which helped develop Shanghai a decade ago, will open an office in Bombay by yearend. The foreigners are expected to bring the latest technology, discipline, and management systems to this nascent market.

About 70% of the new construction is for the IT industry -- whether it's tech parks for companies or housing and shopping centers for their employees. The most stunning new development is in Bangalore - Adarsh Palm Meadows, an 85-acre California-style gated community complex of commercial, residential, and IT park space. In Bombay, K. Raheja Corp. spent about $1.4 billion building a 5 million sq. ft. upscale complex called Mindspace, which includes IT back office space, residential towers and stores.

On the residential side, the increasing affluence of IT workers and more liberal bank lending has helped sustain the building boom in houses and apartments. The average age of a new homeowner is now 32, compared with 45 a decade ago, according to Kotak Property Trust. And the typical mortgage is now 20 years instead of 10. The average price of a middle-class home in Bombay has shot up 40% in the last three years.

Investment in Indian real Estate !!

Demand for office space in India from multinational companies has grown from an estimated 3.9 million sq. ft. in 1988 to more than 16 million sq. ft. in 2005, according to Cushman & Wakefield. Over the next two years, demand is expected to grow 14.5% annually to just over 20 million sq. ft. per year.

Investors in Indian real estate can expect net operating income to increase a minimum of 10% annually based on increasing rental rates. Although 80% of the demand for office space is created by the IT sector, other industries such as banking and financial services, biotechnology and pharmaceutical are growing.

The expansion of new and existing companies is creating a growing middle class with significant investment power in Indian real estate. Around 200 to 300 million of India's population can be described as middle class, which translates into expanding levels of disposable income that can be spent on upgraded housing, entertainment and retail goods and services, as per Indian real estate experts. India's strong economic growth and growing middle class are collectively driving a change in cultural values. Earlier a lot of people stay with their extended families, but today a lot of young people are buying their own homes and adding that industry experts have estimated that India suffers from a shortfall of 20 million homes in major metro areas. The housing shortage translates into an investment in Indian real estate of $325 billion to $350 billion just for residential development alone.

Office space in Growth.

Trammell Crow Meghraj, international realty consultants, recently launched in Mumbai the TCM Knowledge Centre’s latest strategy paper “Changing Dimensions --- Emerging Themes of Office in Indian Real Estate Markets.”

Addressing the media on the occasion, Anuj Puri, Managing Director of TCM, and Tanaji Chakrabarti, president of TCM Knowledge Centre, revealed that the paper analysed the evolution of office space in the last 10 years and projected the course it will follow in the coming years. It also stated the implications of these trends and dynamics for real estate occupiers of office space sector.

After a decade of growth, realignment, consolidation and expansion in the office space sector, it is vitally important the understand the contemporary dynamics in order to correctly anticipate occupier choices in the near future. They further opined that the emergence of tier-II and tier-III cities and of special economic zones (SEZs) are the two aspects that would define office space sector during the days to come.

Office space demand in India

Commercial space absorption increased by 42% from January to July this year. During the entire 2005, the relevant office figure was 3.5 million sq ft. The office space market has primarily been driven by the IT/ITES sector, which accounts for about 75% of the total office space in India absorption in NCR.

The study conducted by the leading global property advisor DTZ Debenham Tie Leung further reveals that Gurgaon accounted for about 63% of the total absorption of office space in India the first six months with a total of 3.2 million sq ft. Over 4.4 million sq ft of office space has been leased over the past 12 months. Due to the increased demand and shortage of supply in the short term, rentals have increased by 44% in the past year in this region. Notable transactions in Gurgaon this year included IBM leasing 500,000 sq ft, SAP 100,000 sq ft, Satyam 85,000 sq ft and PWC 75,000 sq ft. IBM currently has a total commitment of about 8,00,000 sq. ft. of leased office space in Gurgaon. At the same time, CBD (central business district) and SBD (secondary business district) are attracting corporate due to improved connectivity and attractive location. The CBD (Connaught Place) with limited supply of Grade A space has witnessed absorption of only 81,800 sq ft this year. Banks, financial institutions and consultancy firms with a high consumer orientation dominate the office space demand. Due to limited supply and increasing demand office space rental values have increased by as much as 51% in the past one year and are touching Rs 250 per sq ft (in some select buildings). Key leasing transactions in the past quarter included Thales taking up 12,000 sq ft and Times Now taking up 8,000 sq ft.

Investors Choice

India becomes the favorite investor’s hub for office space for IT, ITES and the BPO sector. As a result of this, the real estate market in top Indian cities is witnessing a boom. Apart from the IT/BPO sector, the ancillary industries (banking, insurance, hotels, transport, catering) which are growing as a result of the IT/BPO office space boom are going to account for a large share of the real estate boom.
These sectors account for 70-80% of the commercial real estate or office space absorption in these cities. This heavy absorption by the knowledge industry has resulted in the total commercial or office space absorption in India going up to almost 15 million sq ft in 2004 from 8-9 million sq ft a few years ago. In terms of IT and real estate activity levels, the Indian cities can be classified as Tier I, Tier II and Tier III.
Tier I cities are those which account for almost 60% of the real estate office space absorbed.
Tier II cities are the ones which saw substantial IT activity and saw good real estate growth in the last few years
Tier III cities are the ones that are yet to emerge as key IT/BPO office space destinations.
As the boom continues, the real estate investors from India and all over the globe are setting up operational bases in the top cities Tier I and Tier II cities to cater to the increasing gap between the demand and supply of office space, residential and commercial properties in India. They can be considered as the hottest destinations with sustained buoyancy, offering double digit returns on real estate investment.
The major investments in the corporate sectors office space mainly the IT and BPO sectors are concentrated in the premier cities of India like Delhi, Mumbai, Bangalore, Chennai, Kolkata, Hyderabad, Gurgaon, Chandigarh, Pune etc. The real estate development in these cities for office space, residential and commercial properties in the last few years has been phenomenal and the realty prices in these cities have also skyrocketed.
Real estate investors in any part of the world would always opt for cities to set up homes or corporate office spaces where there is a planned outlay of the city and its associated infrastructure. Coming to basic infrastructure and investment options Delhi, Mumbai and Bangalore have emerged as the top three investors’ choices for real estate investment. The realty in hot metro destinations is driven by the global outsourcing wave sweeping India. As far as the commercial, retail and entertainment segments are concerned; estimates suggest that by the end of 2008, the eight largest Indian cities will experience a supply of around 66 million sq ft of new retail space through more than 200 proposed retail centers.

WANNA MAKE AN OFFICE AT HOME

For the number of Delhiites who prefer working from home, we office space suggestions on how to make a good home-office space great. And this can be achieved in just a few simple steps. For starters, you need to keep the noise down. It must not come in the way of work. If you can, build sound-deadening features into the walls and, if need be, the ceiling. But if your office space is already in place, consider plywood or thick panels.

An office at home needs privacy. And this doesn't necessarily come with a lockable office door. Take privacy a step further with a ‘surround wall.’ These are light, portable screens which can be positioned to provide visual screening and separation.

You also need good lighting. Architect Neal Zimmerman, author of Taunton’s Home Workspace Idea Book, suggests installing a small canopy or umbrella in a corner and aiming light at its underside. Your office will be showered with a bath of light, not to mention providing a degree of privacy and soundproofing – all at a sliver of the cost of pricey lighting fixtures.

Then, remember, you don’t have to think that office space needs to be done up in conventional colours. In fact, you can try using bright, flashy colours. After all, colours can greatly influence our mood and, hence, our productivity and intrinsic satisfaction with what we do. After splashing some on your office walls, you may be surprised at how your mood and work take off.

Why not add some plants to your home-office space? They look attractive and help clean the air, besides adding privacy – a shelf of ferns and spider plants builds a pleasant but effective buffer.

Be careful not to ‘live’ in your home office. One final element that can make a good home-office exceptional is as much the mindset as anything else. Of course, personalising your workspace – be it with family photos, mementos, etc – is essential to making your office an appealing spot. But be cautious about carrying things too far. Make sure you don’t live here or spend more time here than is required. Not only will that get you out of your office more, it will also make your time in your workspace that much more focused, fresh and, ultimately, better spent.