India’s growth as R&D hub to drive demand for commercial real estate: Report – ET RealEstate

MUMBAI: India is expected to become a hub of global Engineering Research & Development centres and contribute significantly to the digital strategies of global multinational corporations resulting in higher demand for commercial real estate and data centres.

By financial year 2022, engineering R&D revenues are estimated to register a compound annual growth of around 8% with multinationals driving growth across products and services, said property consultant Cushman & Wakefield.

Going forward, Engineering R&D revenues are expected to surpass revenues from business process management (BPM) services, thereby consolidating the former’s position as the second-highest contributor to software revenues, after information technology.

Moreover, Indian technologies and applications such as artificial intelligence, cloud, predictive analytics smart devices, etc. As of financial year 2019, Engineering R&D centres accounted for around 20% of cumulative software revenues multinational corporations caught routed around half of Engineering R&D revenues.

This is expected to have a favorable impact on the development of the RMD systems. In India, as well as, job creation over the medium to long term.

According to Cushman & Wakefield, several tier-II cities are showing potential for the establishment of Global Capability Centres (GCC). Most of these are state capitals and are able to attract fresh talent besides better connectivity, superior physical and social infrastructure, while these cities are also ranked higher on ease of living and doing business.

The Indian GCC ecosystem is being driven by digital engineering or Engineering R&D centres across several industry verticals, such as software, automotive, and banking financial services and insurance over the medium to long term.

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Net office absorption seen at 31 million sq ft in 2021 – ET RealEstate

MUMBAI: Net absorption of office space in 2021 is expected to be at par with the last 10 years average of 30-31 million sq ft in India despite the challenges created by the ongoing pandemic, said property consultants.

The emergence of the Work-from-Home model given the lockdowns and safety of employees has impacted the demand for office spaces as only a fraction of employees are coming to offices. However, the numbers are expected to improve with the access to the vaccine.

“I am pleasantly surprised by the absorption. Honestly, I didn’t think that this calendar year will be 50-60% of 2019 absorption. In June, I would have said it would be between 16 to 19 million sq. ft, but now the net absorption is likely to be somewhere around 25 million sq. ft. It is surprising,” said Anuj Puri, Chairman, Anarock Property Consultants.

After the dip in net office absorption in the June-Septmber quarter, it started improving gradually.

“In comparison to Q2, the absorption went up by 63%, but if we were to compare Q3 of the last year, the absorption went down by nearly 47%. So, last year in the first nine month we saw nearly 32 million sq. ft. of net absorption. This year, in the first 9-months, we have only seen 17 million sq. ft. Hence, we expect this year to end with around 25-27 million sq. ft absorption and in comparison to 46 million sq. ft. last year, this is still a drop of 42-45%. 2019 was a very extraordinary year of 46 million sq. ft. It will be wrong to take that as a benchmark,” said Ramesh Nair, Country Head and CEO, JLL India.

According to Nair, the average of the last 10-year can be considered as a benchmark, which is around 31 million sq. ft. and there is a very good chance that in 2021 would cross that number. In 2019, it was 46, but a year before in 2018 it was around 36 million sq. ft.

While net office absorption has improved considerably, only a fraction of employees have returned to work place so far. The percentage is further low when it comes to information technology parks.

“Our research shows it is actually 8% at large campuses. There are two main reasons for it. There are many companies which have gone ahead and announced remote working plans till March 31, 2021 and employees don’t need to come to office. Secondly, employees themselves are not very confident given the public transport situation in the country. It is a gradual process. Occupiers are highlighting that things are improving but very gradually and WFH don’t work for everyone and people will slowly start coming back to office,” Nair added.

Puri echoes the thought. “We don’t think we are going to see people coming until the vaccine is there. It is 9-11% at various office parks and companies are not pushing their employees. Whether WFH works or not is a question mark, but until the vaccine comes in, the percentage will continue to remain low.

According to Anshul Jain, MD-South East Asia and India, Cushman & Wakefield, people are scared but there is also a clear distinction between personal and work. They are out in markets, going everywhere buying stuff, but when it is about coming to offices, they are not keen because of corporate cultural issues.

Jain believes that there will be a lot of experimentation in the office set up in the coming months with work-from-home and other concepts but nevertheless, the future of commercial real estate is bright in the coming fiscal.

Overall office absorption has been impacted because of the WFH arrangements considering the pandemic. Impact is here to stay for few years, but not permanently.

“If we have to put a number for the next two year of how much real estate office absorption is going to be impacted because of WFH, it would be around 20-25% for the next two years,” said Nair at a webinar organized by Workplace Trends India.

The future of co-working is looking robust, as average co-working space has doubled during 2020 compared to 2019, they said.

“Average co-working space has doubled to 70,000 sq ft in 2020 from 35,000 sq ft in 2019. Enterprises are taking up space in co-working setup and these coworking players are now catering not just to freelancers and startups but to larger enterprises and hence they are taking up bigger spaces. The future of the co-working space is really bright,” mentioned Nair.

However, Jain believes that Co-working operators have to concentrate on enterprise clients to stay afloat.

“There were two-three different types of customers for Co-working or Managed office space. There were individuals, there were startups and then there was enterprise. The first two individuals and startups may continue to work from home and they may not come back until 2021, by 2022 they might come back, therefore focus on enterprises,” said Jain.

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India office markets’ fit-out costs most economical in Asia Pacific: Report – ET RealEstate

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MUMBAI: India’s top seven commercial real estate markets including Mumbai, New Delhi, Hyderabad and Pune have emerged as the most economical office interior fit-out markets in the Asia Pacific region, showed a Cushman & Wakefield study.

Key cities in Japan and Australia continued to dominate the top 10 list of most expensive office fit-out locations in Asia Pacific with average fit-out cost of $150 per sq ft. Tokyo, Osaka, Nagoya and Sydney lead the rankings, with Melbourne climbing four spots to fifth this year, the study revealed.

“From an office design perspective, the workplace will evolve from a regular office to a place for networking and with a social feel. We expect that while social distancing and a flexible work policy will reduce the number of seats in an office, there would also be a bigger focus on agile seating formats,” said Shashi Bushan, Managing Director, Project & Development Services, Occupiers – India, Cushman & Wakefield.

Mumbai remains the most expensive office market in the country with an average fit-out cost of $133 per sq ft. The average office interior fit-out cost in New Delhi stood at $126 per sq ft and $33 in Chennai.

Post-Covid-19, the focus on health and safety is expected to continue to intensify, bringing forward greater adoption of touchless technology, improved heating, ventilation, and Air Conditioning (HVAC) and smarter cleaning practices.

“We expect the companies to place more emphasis on employee wellbeing, hygiene, safety and security given that the pandemic has underscored the requirement to do so. Based on our interaction with our clients, we are observing that companies are inclined to de-densify their offices with this objective in mind.While the fit-out cost is already low in India, it will further decrease with de-densification of offices, and modernisation and industrialization that is underway in Indian office interior construction industry,” said Tushar Mittal, Managing Director of SKV, an interior design firm specializing in commercial offices.

While work from home is gaining ground, lots of employers see a need to scale up the usable area for each employee. Several companies are expected to modify their offices to suit new norms and guidelines.

Prolonged, enforced working from home has highlighted that productivity can be maintained, but at the cost of personal connection to colleagues and company culture. This raises questions around the optimal size and composition of the corporate footprint, while highlighting the need for ongoing investment into IT and audio-visual technology for collaborative team working. All these factors are important considerations as companies remain laser-focused on costs.

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Office leasing slips 73% to 3.72 million sq ft in April-June: Report – ET RealEstate

MUMBAI: The Covid19 crisis and the following national lockdown in phases across all major cities have impacted the commercial real estate gross leasing activity adversely in the quarter ended June.

Net absorption of commercial real estate across top 8 cities declined over 73% from a year ago and 49.5% on-quarter to 3.72 million sq ft during the quarter as fresh transaction activity remained muted, showed data from Cushman & Wakefield.

Hyderabad, Mumbai and Chennai have contributed significantly towards net absorption with share of 47%, 44% and 14% respectively, mainly due to projects with significant pre-commitments becoming operational during the quarter which resulted in improved overall net absorption.

Cities like Delhi-NCR and Bengaluru have seen negative absorption pushing the overall net absorption downwards.

“As the world got more engaged to deal with the impact of coronavirus, the resilience of commercial real estate in India was tested. This is reflected in the dwindling demand and supply numbers in the first half of 2020. However, key markets in the southern cities show the highest level of activity during Q2, with Bengaluru leading the pack,” said Anshul Jain, Managing Director, South East Asia and India, Cushman & Wakefield.

According to him, in an ever-evolving situation, it may be difficult to predict the timeline within which Indian commercial real estate might be able to restore its pre-Covid growth momentum. But, a certain level of normalcy could be expected in the second half as companies gradually resume their operations.

In terms of leasing activity, the information technology- business process management (IT-BPM) sector continued to witness maximum share with 43% share in overall leasing. Healthcare & pharmaceuticals accounted for 18.6% share followed by Captive centres (GCCs) with a 10.1% share.

Pre-commitment activity was 3.41 million sq ft compared to 2.25 million sq ft in the previous quarter, on the back of improved pre-leasing activity in Bengaluru and Hyderabad. This points towards healthy medium-term forecasts for the sector’s recovery as occupiers commit to space take-up based on future growth plans.

Bengaluru led with a 43% share, followed by Hyderabad with 39% share, Delhi NCR with 11% share and Chennai with 7% share.

The completion activity also remained slow during the second quarter, resulting in 7.54 million sq ft supply being added, down 23.8% on quarter.

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