India Office – A Real Estate Overview

For the past decade, India has been a favored destination for business houses. And the trend continues in 2007 with even more number of major MNCs and financial institutions planning their India entry strategies. While this business opportunity is led by the unprecedented outsourcing activity driven by the information technology (IT) or IT-enabled services in the Indian subcontinent, numerous more global companies from diverse business domains are setting up their back offices here and outsourcing their work to India.  In the wake of this scenario, we present here an overview of the real estate infrastructure in various Indian cities.

Delhi, Gurgoan and Noida

The National Capital Region, known as the NCR has witness high-end real estate activities usual to a national capital. Here in the last quarter alone, around 1.5 million sqft of Grade A office space was made available with the concentrated being majorly in Gurgaon & Noida. The remaining supply was contributed from Jasola & Mohan Co-operative areas while few fresh supplies were added in Central Business District of Delhi.

The demand in Delhi and NCR is witnessed a huge rise. This was attributed to the legal restrictions and necessary permissions imposed by the government, which the real estate developers have to possess as mandatory. As a result high end legally conforming real estate development were absorbed instantly. The vacancy levels in main Delhi remained at a very low level as 1% to 2% supplemented by 4% vacancy rate in Gurgaon. However, with fresh supply addition, the vacancy levels in Noida & Jasola hovered between 10% - 12%.  The monthly rental per square feet (psf) varies from Rs. 50 in Noida to Rs. 275 in Connaught Place while in Gurgaon it is currently at Rs. 75. As these figures indicate, the rising demand in Delhi has triggered a price hike on commercial real estate. However Noida & Jasola areas remain affordable cheaper.

Some of the major ongoing commercial projects in the city are:

• Galaxy Court, Panipat
• Roman Court, Kundli
• Times Square, Gurgaon
• Palam Triangle, Gurgaon(Palam Vihar)
• Spanish Court, Gurgaon(Palam Vihar)
• Omaxe Citadel, Jasola
• Pearls Omaxe, Wazirpur

Located around Nariman Point, Fort and Ballard Estate (Mumbai CBD area) and other highpoints such as Worli, Lower Parel, Bandra Kurla Complex (BKC) and the commercial hub along the Andheri - Kurla stretch, the Mumbai real estate market interest any top notch MNC. The last quarter has witnessed an addition of around 1 million sq ft of Grade A office space. BKC & Andheri together contributed more than 60% of total freshsupply. The remaining supplies are the constructions in Worli/Prabhadevi & Lower Parel.

The demand in Mumbai is especially gathered from the financial institutions and the world leaders in banking services. At the same time, the IT/ITES sector continues to dominate the market especially in Malad and Powai, where IT/ITES companies continue to support the demand amidst zero fresh supply. Owing to supply crunch, slight demand and hence a price hike is seen to dominate the Mumbai market. A shift from CBD to north of Mumbai & newly emerging markets like Navi Mumbai & Thane is being observed. The monthly rental per square feet (psf) varies from Rs. 50 in Navi Mumbai to Rs. 280 in Bandra Kurla Complex while Powai and Malad are reasonably priced at Rs. 50. The vacancy levels have dipped to all time lows especially in markets like AKC, Malad & Powai. The vacancy levels in CBD are also down to mere 1% -2%.

Major Builders and Developers in Mumbai are Hiranandani and  K Raheja Constructions.

Few of the ongoing commercial projects in the city are:

• Powai Plaza, Powai
• Winchester
• Hiranandani Gardens, Powai
• Interface, Malad
• Raheja Plaza, Ghatkopar
• Palm Court, Mala

Chennai has nurtured its business districts principally around three principal sub-markets– CBD, IT Corridor and SBD. SBD comprises of Guindy, T Nagar and other areas. In addition to this, Ambattur - a western industrial suburb of Chennai, is rapidly emerging as city's new IT hub. High-end IT space is currently being developed in Ambattur region and with adequate availability of the land parcels; the construction activity is on a rise.

The drive on the demand in Chennai is majorly from IT/ITES sector companies which contribute 90% of the total demand primarily targeted at Ambattur industrial estate & Guindy while CBD and SBD remained the preferred locations for MNCs, Banks and Telecom. The locations with larger floor plates & adequate parking facility such a business and technology parks are in high demand. Currently, the office absorption rate in Chennai ranges between 95-97% and the vacancy rate in CBD, IT Corridor & SBD stayed around 3% only. The fresh supply coming in suburbs is catering to the growing demand and thus, keeping a check on price hike.

Chaitanya Builders and Appaswamy Builders are the major Builders and Developers in Chennai.

Some of the ongoing commercial projects in the city are:

• Orchid Towers, Sterling Road
• Capitale, Anna Salai
• Chaitanya, Venkatnarayana Road
• Hallmark Towers, TTK Road

Bangalore

Prime office spaces in Bangalore are located in CBD, Koramangala, Whitefield, Electronic City and Outer Ring Road (ORR). Presently, ORR & Bannerghatta Road is witnessing a boom in real estate market. The monthly rental per square feet (psf) varies from  Rs. 20 in Electronic city to Rs. 60 in the Central Business District (CBD) while Bannerghatta Road is priced at Rs. 40. There is a substantial fresh supply of more than 2.5 million sqft space. Out of the total fresh supply more than 70% was spread on EPIP Zone in Whitefield and other areas in ORR. Even the supply in the CBD area is healthy. The positive advantage about Bangalore is the support from the government infrastructure which is helping to provide quality well planned and commercially viable office space options. 

The demand in Bangalore is majorly from IT/ITES sector and this is usual considering the fact that Bangalore is considered the Silicon Valley of India. IT/ITES firms continue to target Grade A buildings in Whitefield, Electronic City and ORR because of availability of large floor plates, better social infrastructure and lower rentals. The vacancy rate in CBD is at a very low level of 3% which results in companies focusing their strategies towards the suburbs. The vacancy levels in EPIP Zone/Whitefield remained around 15% due to less demand and oversupply of office space. With fresh supply addition, the vacancy in PBD varied between 20%- 25%.

The major Builders and Developers in Bangalore are Prestige Constructions and RMZ Corporation.

Some of the ongoing commercial projects in the city are:

1. Prestige Nebula, Cubbon Road
2. Prestige Libra, Lalbagh Road
3. RMZ Ecospace, Outer Ring Road
4. RMZ Centinnel, Whitefields

Ahmedabad, Pune, Chandigarh, Indore, Kolkata, Kochi, Jaipur and Nagpur are the Tier II cities in India which have emerge as major centers for the offshoring of activities by IT companies over the last two years. These cities are fulfilling the requirements that IT companies look for when deciding on offshoring locations, namely availability and costs of labour and real estate, business environment as well as physical and social infrastructure. However, for firms entering India for the first time, Tier I cities of course provide much higher comfort levels.

The Tier II cities are already witnessing extensive interest from occupiers, with demand of 1.2 - 1.5 million sq ft expected over the next year. This interest is likely to trigger further growth in infrastructure and commercial real estate, similar to the growth experienced in Hyderabad and Pune in recent years. In addition to the cities listed above, a number of other cities are also emerging as potentially suitable locations for IT offshoring. While they have not yet attracted the same level of occupier interest, cities such as Coimbatore, Trivandrum and Mangalore are beginning to appear on the radar screens of IT firms.

Each of the Tier II has its own characteristics that will appeal to different types of activities and firms. From a human capital perspective, Kolkata and Nagpur provide the largest manpower pools with these cities being comparable to Pune (Tier II) in terms of future labour availability. Nagpur currently provides a cost advantage of about 15% over Kolkata, which offers a 10% cost advantage over Pune. From a real estate perspective, Kolkata provides the largest availability of grade A office space, with large developers such as DLF and Unitech, who have traditionally operated in Tier I cities now operating in Kolkata. From a facility cost view, Nagpur and Ahmedabad provide a 25%-30% cost advantage over Kolkata and Delhi. Ahmedabad and Chandigarh provide the highest cost advantage amongst the subject Tier II cities and are therefore likely to attract occupiers that place a high weight on the cost factor.

For companies entering India, Tier I cities is definitely the only choice. For companies having existing base in India, tier II cities offer substantial growth prospects. Looking ahead, risk avoidance is becoming an increasing priority and the issue for firms already located in India is the extent to which risks will be reduced by establishing facilities in other countries. Low cost destinations elsewhere in Asia (e.g. Manila, Dalian and Tianjin) along with those in Central Europe (e.g. Prague, Budapest, Warsaw and Krakow) and Latin America (e.g. Sao Paulo and Buenos Aires) are all competing for the same market as Tier III cities in India. But the talent pool and skilled labor in India still remains the most important factor for business interests in India.