Commercial office sector headed for positive disruption

The Indian real estate is on the cusp of change as the commercial office segment moves closer towards corporatisation, according to RICS and Cushman & Wakefield report 'Commercial Office Real Estate: Positive Disruptions- Beacons of Change’. The report was released 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 institutionalisation. 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 institutionalisation, especially once REITs 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 institutionalisation 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 or 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 among 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 organised players entering the market To tap into the growing demand for office, several global and Indian co-working players are creating stock in the top cities. Global and local companies are competing with each other to offer the best proposition to clients by offering best practices in the industry. Co-working spaces are evolving, driven by the changing needs of their occupiers to increase collaboration and productivity. Although, Bengaluru, Delhi-NCR and Mumbai see the highest concentration of co-working centres, Hyderabad, Chennai and Pune too are seeing some activity. “Day-by-day co-working spaces are becoming important given that start-ups are mushrooming across sectors and businesses as India’s millennial workforce increase in size and becomes increasingly entrepreneurial. This workforce look for spaces that can inspire creativity, provide the means of collaborating with others and keep pace with changing preferences and needs. Increasing mobility and connectivity also means that the current and future workforce does not want to be physically rooted to a few square feet of space,” Jain observed. He added, “Co-working is becoming an attractive option for huge corporations and established start-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 or site offices or incubation of new teams and divisions. Going ahead, we foresee companies adopting hybrid models, under which companies will have a combination of co-working space for some functions, as well as traditionally leased offices as part of their office portfolios.” Read the full report here.