India Office Real Estate Looks Suburbs to Cut Cost

 

Karan Khetan

The recently conducted Jones Lang LaSalle India CFO survey revealed that approximately 68% of the companies are planning to expand their operations in the next five years because they will be able to reduce real estate costs and move into superior quality projects, which are available at lower rents and offer modern amenities, car parking and safety, says Karan Khetan, Research & REIS, Jones Lang LaSalle India.

India is rapidly urbanizing and the skylines of the country’s metropolises are changing quickly with the building of skyscrapers and modern architecture. The smaller towns too are metamorphosing in unprecedented ways through the expansion of transportation networks, the creation of central districts and parks and by numerous residential projects.

Many cities have been transformed and Ahmedabad is most illustrative of them. Even before the metro rail link between Ahmedabad and Gandhinagar has sprouted tracks, Gujarat International Finance Tec-City (Gift City) phase I (10 million sq ft) has already rolled out its construction plans.

However, all these big changes have not been caused by irrational enthusiasm – they are indeed necessary, given the influx of people to the towns and the needful creation of employment. As existing CBDs have become saturated, India’s commercial real estate markets have grown in terms of both the density of existing business districts and the emergence of new ones.

During the past decade, India’s commercial property segment has been witnessing a steady rise in demand for office space and the impact of the GFC is now waning. All this activity is credited to the significant shift within the country from developing average-quality commercial space to building superior-quality projects with advanced amenities that support the business environment. Also, the on-going infrastructure initiatives are aimed at transforming the suburban areas into successful commercial centres.

The recently conducted Jones Lang LaSalle India CFO survey revealed that approximately 68% of the companies surveyed are planning to expand their operations in the next five years. These companies may prefer to shift to suburban locations because by doing so they will be able to reduce their real estate costs and move into superior quality projects, which are available at lower rents and offer modern amenities, car parking and safety.

The banking, financial services and insurance (BFSI) sector dominates the CBD market due to its willingness to pay higher rents, whereas IT/ITES occupiers dominate the suburban market in terms of occupancy due to the availability of larger office space areas and because the nature of their business makes them vulnerable to higher real estate overhead costs.

Suburban locations are home to the majority of office real estate occupiers and will have a growing role in determining the performance of the country’s office market. The absorption of office space in the country totalled 26.7 million sq ft in 2012 with suburban locations accounting for more than 60% of the total, or 16.6 million sq ft.

This is forecast to increase further to 68%, or 19.2 million sq ft in 2013. These growing real estate activities in suburban locations of India provide evidence of a shift in gravity towards this market.