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.
RiteshSachdev, 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 sqft 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 sqft, 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.