CHANGING OCCUPIERS PROFILES IMPLICATIONS FOR COMMERCIAL REALTY
Transformation of the way we work and the changing profile of occupations themselves are re-defining the relationship between the workplace and the worker. In sync, the patterns and trends of occupying commercial space are changing drastically.
TEXT: LEANDRA MONTEIRO
The last few years have witnessed substantial changes in occupier profiles across the key office markets in the country. Office demand, till a few years back, was led by the IT/ITeS sector in major cities such as Bengaluru, Delhi NCR, Pune, Chennai and Hyderabad, with other sectors such as BFSI, Manufacturing, Pharma and Telecom accounting for the rest of the occupiers’ pie.
India is predominantly known as an IT destination. The sector has over the last five years consistently taken up more space as compared to the any other occupier mostly in Bengaluru, Chennai and Hyderabad. Mumbai commercial real estate however, is primarily been driven by the BFSI (Banking, Finance, Services & Insurance) sector.
But, as India’s regulatory environment is becoming more transparent and with accountability on a rise, international firms are increasing their footprint in India by establishing Research & Development and innovation centres. Captive Centres accounted for 26% of the total leasing during 2018-19, with India’s emergence as a hub for Global in-house centres/Capability centres mainly from the North American and European markets.
CHANGING OCCUPIERS PROFILE
The strong demand for Grade A office spaces is buoyed by the occupiers in the technology and IT-BPM space, though its share has observed a gradual decline in recent years. Lately, technology, media & telecom (TMT) MAY 2019 | realtyplusmag.com 38 have emerged as major occupier sectors accounting for about 19% of Grade A office space in Mumbai and 48% in Bangalore at end-2018.
The increasing absorption trends shown by co-working space operators have further altered the occupier profile. Flexible workplace companies that include co-working and business centres raked up the highest ever leasing in 2018 at 4.9 msf. The growth in new occupiers’ profiles has had several implications on workspace real estate.
- Change in the pattern of workplace design and organization
- Increased use of tech-based data analytics, online operations and smart media tools
- With millennial workforces preferring to be mobile, efficiency of space use has become increasingly important
- The CBD office spaces are being taken up by co-working space operators giving start-ups the option of being centrally located at reasonable rentals as per their space requirements.
Ritesh Sachdev, Managing Director, South & Occupier Services at Colliers International India said, “Not only are occupier profiles changing, but so too are patterns of workplace organization and design. Offices are increasingly laid out on open-plan activity-based or agile working principles, while occupiers in general are demanding flexibility, efficiency of space use and enhanced ambient experience as tools to staff retention for a more mobile and younger workforce.”
TOP OCCUPIERS & THE LEASING ACTIVITY
IT-BPM sector continued to be the largest demand driver with a share of 33% in leasing activity. Almost 31% of the total space leased through large deals was accounted by the IT-BPM sector.
In the total space leased by large deals, captive centers accounted for a whopping 41%. Majority of the space for captive centers was leased by the BFSI sector as financial services firms look to insource back-office operations and R&D. Flexible workplace sector accounted for almost 10% of total large deals in 2018. Flexible workplace companies are aligning themselves to target large enterprises and are transforming into managed space operators where they are willing to offer the entire centre to a single tenant. This is leading to a larger uptake of space by such companies.
THE NOTEWORTHY LARGE DEALS
There were approximately 111 large deals (above 100,000 sf) in the market. Total space leased through large deals rose 31% y-o-y to 27 msf during 2018 and accounted for 57% of the total Grade A leasing during the year, from almost 50% share in 2017.
Bengaluru accounted for almost 42% of the large deals, spurred by space take-up by occupiers in sectors such as BFSI and Engineering sectors for their captive centres. Hyderabad, with a share of 22% in total large deals, witnessed large deals by IT-BPM and captive centers.
CO-WORKING TAKING OVER THE MARKET
Flexible workspace providers have made quite a few inroads into the Indian urban markets. It is now observed that flexible workspace is a fully established occupier sector, serving an important niche market. While there are chances that the growth rates in the sector may slow it is not expected that the trends go into reverse.
Currently Occupiers are in a position to make greater demands on workspace providers, given there is a supply-demand mismatch which gives occupiers a higher bargaining power. The emergence of new sectors is changing the demand profile and reflecting the dynamics within sectors like E-commerce, Manufacturing & Industrial. Online retail firms like Amazon, Flipkart and Snapdeal have committed to large spaces, particularly in the NCR and Bangalore.
“Demand for co-working spaces in India is primarily led by start-ups, freelancers and SMEs. Co-working space operators usually offer a better geographical spread and enjoy higher scalability as they are not restricted by what they own. Majority of the occupiers of co-working space choose such workspace to benefit from flexibility of lease term, followed by reduction in Capex. Lately, there has been significant interest evinced by larger corporates in such collaborative spaces, attracted by the potential of gaining exposure through networking opportunities and other synergistic approaches. Companies such as Google, Adobe, Cisco, E&Y, Dell, Xander and HSBC, amongst others, have leased desks in co-working spaces in key office markets across the country.” stated Shrinivas Rao, CEO-APAC, Vestian Global. Gross renting of office space reached an all-time high of 48.1 million sq ft in 2018 across the eight major cities. This was a result of higher demand from domestic and global corporates as well as co-working operators. Co-working players took on lease nearly 5 million sq ft, highest ever, of office space during last year.
INTO THE FUTURE
The IT sector has been a major demand driver for real estate over the last few years and is evolving from the initial outsourcing boom to now more tech-driven and specialised IT services. The number of companies opening up in India has substantially increased over the last 5 years. The already existent companies as well have gone on a leasing rampant, doubling the number of seats.
In the last two years co-working has seen a great start in the country and is likely to play a strong role in reshaping the way the serviced office industry works. With the emphasis on manufacturing facilities in India, the increased manufacturing demand will, in turn, lead to more office space absorption. Considerable activity in the logistics and warehousing sector is also expected in the near future.
In addition to the changing occupier profiles, there will also be a transformation in the type of office spaces leased. As companies in India are embracing a host of innovative and bold workplace amenities including creative areas, retail spaces, childcare and wellness and rejuvenating facilities, the way in which office spaces are leased in the future will soon change as much as the occupier profiles are transforming. Subrata K Sharma, COO- Commercial, Brigade Group opens up about changing roles in occupiers profile.
How has the occupier profiles changed in the last few years?
The Tech and ITES sectors continue to dominate the commercial space occupancy followed by e-commerce and Fin-Tech. Manufacturing, AI, Bigdata and logistics sectors constitute the rest of the occupier’s profile. The year 2017 saw a major change in commercial real estate with the entry of co-working spaces in the country.
What are the major implications of new occupation profiles on workspace real estate?
- Occupation profiles on workspace real estate? In today’s scenario, commercial Real estate has become more service oriented than product specific and these implications are quite significant. The workspaces of today are focussed more towards a customer centric model.
- Customisable office spaces, which allows occupiers to take control on the fit-outs, flooring and customisable models
- Designs that promote relationship of workspace with human, design and functional aspects
- Elements, indirectly connecting a workspace environment with productivity, like bringing in natural elements, natural light, ventilations, adjustable desks which directly / indirectly improves efficiency
- Location dynamics is another strategic implication. The commercial spaces with better communal connect and amenities also contributes towards selection office spaces.
Are Occupiers now in the position to make greater demands on workspace providers?
The demand exists by default and the demand comes from all industry sectors, especially the new age companies who choose contemporary office spaces over traditional spaces. The workspaces with interesting and modern façades, informal meeting areas, greater access to public transport, sensitivity to employee wellness, sustainability etc. remain in the checklist of high-profile occupiers and it influences the decision makers of SMEs and Digital/Tech communities. The reason is to attract the best talent in the industry and to kindle creativity and innovation within companies which thereby improve the overall efficiency.
Which occupier sectors are dominating the flexible workspace market?
Flexible or co-working spaces consumption is led by Tech, E-commerce and Media companies. We also see interest from BSFI, start up and freelancing communities. The primary advantage with co-working is the cost advantage and office space that is readymade which results in minimal cost to set up and additional amenities like game zones etc. The workspaces also come with a lesser lock-in period.
Which occupier sectors are dominating the prime office space in CBDs?
CBD occupancy is dominated by BFSI, Consulting, media, IT & back offices for manufacturing and engineering companies. We are also observing enhanced preference for select developments in the CBD by many IT Majors. CBD areas have its advantages in terms of significant visibility, accessibility and superior social infrastructure.
Which are the largest commercial occupiers of Brigade and how much is the area acquired?
Our major occupiers are from the IT, e-commerce, Fin-Tech and manufacturing companies. They constitute almost 80% of our occupancy.