MUMBAI: International property consultancy JLL India, has released its latest research report ‘Mumbai Offices 2020: Mapping the Future of the Mumbai Office Market’. Anticipating the changing trends of commercial real estate in India’s financial capital, ‘Mumbai Offices 2020’ provides ‘foresight with purpose’ into where Mumbai’s office market is headed. Talking about this report, Ramesh Nair, COO – business, JLL India, says, “With this report, we reaffirm that Mumbai will continue to be acknowledged as the financial capital of India. We have established that high quality, iconic and well-positioned workspaces, are going to be a key attraction, and that the sustainability agenda will not render Mumbai’s office stock entirely obsolescent just yet. We have also underscored the inevitable fact that limited infrastructure and high commuting times will lead to a number of mini-CBDs in Mumbai.”
Commenting on some of the leading concerns of commercial space stakeholders in Mumbai, Nair adds, “In the future, commercial space landlords will look at higher-quality partnerships, based around longer and fairer rental contracts. Also, corporates’ relocation decisions will majorly be based on CAPEX calculations.” “Today’s mantra is definitely ‘collaborative space’. Campuses, in particular, are stressing on the need for better environments to produce better outputs. Of course, good salaries are still the employees’ main motivation. However, progressive companies realise that it is innovative rather than functional office spaces that can help them in the war for talent. This is becoming a distinct trend in Mumbai,” he adds.
Mumbai’s office buildings are continuously evolving to keep up with sistercities. Transformation is driven by both, aesthetics (building quality) and innovation (new work practices). Considering aesthetics – changing building standards means that even buildings dated 10 years ago, are well along the cycle to obsolescence. Clearly, multinationals are insisting on global standards for Mumbai – organised in business districts, with high-quality specifications as well as excellent safety and security systems and buildings with higher degree of resiliency and sustainability.
The general rule in the past has been that the office market in Mumbai is divided into two: 1) Multinational companies lease office space built by reputed developers and 2) Domestic companies buy from local investors.
Even if this generalisation was true in the past, going forward, the marketplace will become less double-sided. So, whilst it is true that the strata-titled offices are owner-occupied, it is no longer true to say that family investors are just interested in purchases. Some are now saying that it is not a good investment sense to have money tied up in one semi-liquid asset, and that leasing will free up capital and allow for regular cashflows. High vacancy rates in suburban locations, will mean that companies in the IT-ITes sector and those setting up back-end offices, as well as MNCs contemplating consolidation, have time at their disposal to take decisions.
The sustainability agenda
In Mumbai, the sustainability agenda has been driven by the MNCs’ global policies, rather than led by the government. Although, the LEED certification exists, it is voluntary, with no mandatory reporting, and as a consequence, as little as 4 per cent of Mumbai’s office space is certified. For example, government involvement is increasing, as seen by the move towards greener offices by 2014. Meanwhile, there is an initiative to bring in regulations for energy performance by 2015. Some companies might even take the step towards self-generation of electricity. There is also a policy towards more stringent environmental impact assessments for new construction above 20,000 sq ft i.e. regarding air conditioning and grey water use.
The report expects the private sector to continue to make improvements to their green credentials. For example, whilst green leases do not exist as such, some features of green leases will be incorporated. Retrofitting brown buildings into green buildings is extremely rare in Mumbai, with some multinationals having to move out to find more environment-friendly properties.
At the same time, these green buildings are more likely to be of prime quality, so the maxim of ‘a green building is a quality building’ certainly applies to Mumbai’s office space.
Unlike other markets where all new construction will be sustainable by 2020, the report anticipates more modest goals for Mumbai. However, up to 50 per cent of the new offices could be sustainable. As for refits, the key upgrades will be made in energy conservation (which might be incentivised by the government). Do not expect the green agenda to render Mumbai’s office stock obsolescent just yet.
India is more self-sustaining than any of the other BRIC economies. It’s driven by its own consumption, not exports nor foreign investment, and therefore, resilient to externalities. Mumbai is a key entry point to this massive market. India’s demographics are astonishing. It has been calculated that by 2050, India’s workforce will be virtually as big as America’s and China’s combined. Before then, perhaps as early as 2030, India will be the world’s third biggest economy. These are irresistible facts. International occupiers and investors will have to position themselves to take advantage of India’s huge internal market; they have no choice. The question is when?
The government has clearly stepped up the reforms. Passing the new Land Acquisition Bill and Real Estate Authority Bill has indeed been helpful in India’s march towards absolute transparency and has been one step closer to achieving a robust real estate market. The hope is that the FDI will arrive again sooner, rather than later. The linked hope is that deregulation will accelerate this timetable.
What is certain is that by 2020, there will be increased clarity. The competitive threat of oriental and Indian cities will be more evident. The government’s liberalising agenda will be better understood in one direction or the other. The economic and education story will show whether India is on the path to dragging millions out of poverty or not. Occupiers and investors will play ‘wait and watch’, but one fact is evident-whilst there can be varied perceptions about country – level risks, Mumbai remains the first port of call, and it does remain as the most-favoured Indian city for the rest of the world.