Corporate decision-makers are responding to signs of economic improvement across Europe, shifting focus away from pure cost management to future growth opportunities, with an increased appetite for global expansion into Indian markets, according to CBRE’s latest annual European Occupier Survey.
The European Occupier Survey is an annual survey, conducted in-house by CBRE to analyze the latest occupier real estate trends. This year, over 70 corporate occupiers responded to the survey. They represented leading corporations covering a range of sectors, with the Banking and Finance (22%), and Technology and Telecommunications (20%) subsets forming the largest groups, and a further 14% constituting the manufacturing sector.
The survey, now in its fourth year, is conducted by corporate real estate decision makers at global corporations, collectively occupying approximately 2.7 billion sq. ft. (250 million sq. m.) worldwide. It shows corporates’ increased confidence in the economic recovery, with less than half (46%) identifying weak economies as a concern.
As the economic outlook improves, multi-national companies are demonstrating an appetite for international expansion into new markets. The survey demonstrates this with more than half of the corporate respondents (56%) naming access to new markets and customers as the principal driver for location decisions.
This broad appetite for expansion sees India emerge as a destination of choice…
When asked to identify where they intended to expand their operations, about 48% named India (double the figure from 2012–13 at 24%), and 42% named China (down from 60% in 2012–13). There is also a significant increase in the number of corporates intending to expand into Africa. This target market is now identified by a third of respondents (34% today), versus a fifth (21%) in 2012–13. In the case of India, rapid population and economic growth, coupled with increasing transparency and improving infrastructure, is removing many of the traditional barriers to entry.
The opportunities presented by rapid growth in India may now be sufficient to overcome some of the longstanding barriers—governance, infrastructure, bureaucracy, and lack of transparency—that have inhibited inward investment.
India has already attracted a large number of occupiers from a range of sectors, including financial and business services, media, technology and telecommunications, and pharmaceuticals. This has been supported by a general process of de-regulation and a range of specific government initiatives designed to attract foreign investment, such as relaxation of rules on foreign ownership, streamlining of the development process, and promotion of a range of high-tech growth industries. Improved international and domestic infrastructure connections have supported growth in a number of cities, including Mumbai’s financial cluster and the economic hub of the Delhi National Capital Region (NCR). Growth in the technology sector has particularly contributed to this phenomenon.
As a signal, perhaps, India’s commercial office market across leading cities has been headed towards a mature growth curve. An emerging trend has seen various off-shore funds and key institutional players turning to investments in core commercial assets. Private equity firms, pension funds and real estate investment trusts (REITS) own close to 80% or more of the office space market in most mature markets around the world. With the possibility of Indian REITs taking off, and India’s core commercial assets yielding comparatively high rentals among emerging markets, it would seem that India is presently poised to make the best of the opportunity headed its way.
On the supply side too, the commercial office segment of India’s top cities is expected to see fresh supply addition of more than 150 million sq. ft. by end-2017. According to CBRE Research, the next four to five years are slated to see the completion of a number of under construction and planned commercial office projects. The three major metropolitan centers of Bangalore, Delhi NCR and Mumbai are slated to account for nearly three quarters of this planned supply, with Bangalore and the NCR alone expected to contribute to more than half of the total upcoming office space addition by 2017-end.
Most of these are planned and under-construction IT/ITeS spaces. Gurgaon and Noida are likely to attract the maximum number of these projects in the Delhi NCR; and quite a few micro-markets in Bangalore too are expected to follow suit. While the Outer Ring Road (ORR) stretch is anticipated to witness more than half of the supply set to hit Bangalore in the next four years, the rest of the city’s upcoming office space will come up in the North Bangalore area, followed by Whitefield and Electronic City.
Bangalore has also crossed a milestone in its commercial office space development curve in 2013, by becoming the first office hub in India to have joined the global club for 100-million-sq.ft. office markets.
This expansion of modern, investment-grade office stock in the main cities of India will also go a long way in meeting upcoming opportunities head on…