asian offices - future global drivers

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3

E d i t

Commercial property has recaptured its place as a preferred institutional investment category, and

the global direct investment into commercial real estate is expected to surge by 20 to 25 percent to $380 billion in 2011.

Fourth quarter 2010 saw global investment volumes top the $100 billion mark for the first time since the onset of the global financial crisis in 2007, demonstrating momentum for increased investment trades in real estate sector.

“Investors will increasingly tap commercial real estate as an asset class due to its income-producing characteristics,” observes Colin Dyer, Chief Executive Officer, Jones LangLaSalle.

Following the credit crisis, investors are also demanding the ability to see clear exit strategies before placing their capital into commercial real estate, he says.

While the current trends in the commercial real estate sector are encouraging, many risks still remain on the road to global economic recovery, represented by the massive trade imbalances in place and the government deficits around the world.

In Asia Pacific however, capital values are expected to increase in nearly all markets during

2011, by up to 25 per cent, as rental performance and investor confidence further improve. Markets expected to see the largest growth include Hong Kong, Tokyo, Singapore and China.

Rental growth of up to 30 per cent is expected across the region this year. Jeremy Sheldon, Head of markets for Jones Lang LaSalle in Asia Pacific says, “the pick up in demand is broad based, and increasingly includes the local corporate sector, especially in China and India. MNCs seeking global growth opportunities are in the market as well as some new entrants. These trends will continue into 2011 barring any economic or political turbulence.

Demand for office space in India, driven by the increasing share of the services sector, is estimated to be approximately 55 million sft per year.

The overall constructed area is to increment by about five times from 2005 to 2030 at a CAGR between five per cent to 10 per cent. The challenge before India is to plan and implement energy efficiency measures during the early stages of growth in the building sector.

Building energy consumption accounts for over 30 percent of electrical energy consumption in the country, and is rising annually at eight per cent. Lack of energy conscious designs have led to

rampant inefficiencies in commercial buildings and energy audits show energy saving potential of up to 30-50 per cent.

Recent initiatives like Leadership in Energy and Environmental Design ( LEED-India), TERI-GRIHA, the national green building code, Energy Conservation Building Code, India, rightly emphasise on passive architecture, building envelope (walls, roofs, windows), lighting, Heating Ventilation and Air Conditioning (HVAC) System, solar water heating and pumping, towards achieving this.

The science of low carbon buildings is more advanced than our capacity to implement these technologies and designs. It is therefore critical to build capacity and train existing professionals - architects, civil engineers and builders in the techniques and technologies of green buildings.

Although sustainability principles may be embedded in the policies of property owners and occupiers, translating them to their property decisions has been difficult.

The recommendations at a recent conference co-organized by Royal Institution of Chartered Surveyors ( India) on “Moving towards low carbon buildings in India,” points to the need for knowledge transfer across stakeholders from the design

to completion stage for greater understanding of the need for energy efficiency and associated savings,

Every corporate needs to set itself climate objectives in terms of reducing green house gas emissions. The Indian Green Building Council and GRIHA Ratings are India’s own contribution towards ushering in a green building movement in India.

“As is typical of most emerging markets, every passing property market cycle is evidencing greater demand for improved quality in real estate among tenants. One of the most impressive aspects for India is the speed at which developers are improving the specifications of their buildings. Additionally, occupiers are focussed on increasing the quality of their fit-outs to enable more productive and attractive workplaces. This trend is expected to continue as economic conditions continue to pick up,” observes John Forrest, CEO – Corporate Solutions (Asia Pacific) Jones Lang LaSalle. n

Padma RamakrishnanAssistant [email protected]

Lustre back on commercial real estate biz

6

ContentsEditorial ............................................................................................................................ 3

Foreword ......................................................................................................................... 8

Global office market out of recession: Positive rental growth ..................10

Asia Pacific-strong growth outlook ......................................................................16

A glance at the World’s most expensive offices ..............................................20

A window of opportunity for occupiers .............................................................24

Growing cities, evolving workstyles & global influences in India .............28

Changing dynamics of office spaces: An India perspective ........................31

The performative workplace ..................................................................................34

Green at its best: Suzlon One Earth ...................................................................40

Managing Director : Sanjeev Khaira Publisher : Vijay Adhikari Assistant Editor : Padma Ramakrishnan DEsign Art Director : Deepjyoti Bhowmik Designers : Yogesh Naik, Shailesh Vaidya, Jinal Chheda

MArkEting Assistant Manager : Santosh Venkataraman OPErAtiOns Head-Finance : Yogesh Mudras Financial Analyst : Vinit Joshi Head-Operations & Administration : Satyendra Mehra

OnlinE Assistant Manager Web services : Nilesh Mungekar Web Designer : Nitin Lahare

sAlEs MuMBAi Head Business Development : Muhamed Shahid Akhtar (national) Assistant Manager sales : Sarang Mehta PrODuctiOn Deputy Manager : Prakash (Sanjay) Adsul

lOgistics Assistant Manager : Bajrang Shinde DAtABAsE Manager : Manoj Ambardekar senior Executive : Deepanjali Chaurasia

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importantEvery effort has been taken to avoid errors or omissions in this book. in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice immediately. it is notified that neither, the editor or the seller or its employees or agents will be responsible in respect of anything and the consequence of anything done or omitted to be done by any person in reliance upon the content herein. This disclaimer applies to all readers of this book.© uBM india Pvt Ltd. All rights are reserved. No part of this book may be reproduced or copied in any form or by any means without the prior written permission of uBM india Pvt Ltd. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Mumbai only. While care is taken prior to acceptance of advertising copy, it is not possible to verify its contents. uBM india Pvt Ltd. cannot be held responsible for such contents, nor for any loss or damages incurred as a result of transactions with companies, associations or individuals advertising in this book. We therefore recommend that readers make necessary inquiries before sending any monies or entering into any agreements with advertisers or otherwise acting on an advertisement in any manner whatsoever.

8

Fo r e w o r d

For two consecutive years, 2009 and 2010, economies across the Asia Pacific Region posted strong

results. Real GDP growth surged across countries and was estimated at 6.9 per cent, with China, India, Singapore and Taiwan leading the way. Infact the GDP for India in 2010 was 8.8 per cent and is projected to remain close to 8 per cent until 2015.

The recovery in the Asia Pacific Region is particularly impressive since it is driven by internal market consumption. Domestic demand has been the driving force for growth, supported by rising employment and incomes.

This economic resurgence has helped the office market stage a spectacular improvement. Stronger demand, resulting in increase in business activity have caused rents to climb in the Asia Pacific. In Singapore big financial corporations have started expanding. In India, IT and BFSI segment have started to expand their footprint leasing more and more office spaces.

In this CoreNet Special Publication, we have bought together experts from the industry to share their knowledge and insights on various aspects of the

Real Estate Industry.Pratap Mane, Director Head

–Corporate Real Estate & Services, South Asia, Deutsche Bank AG, in his article on “A Window of Opportunity for Occupiers,’’ explains that proactive portfolio rationalisation, caution, diligence and well timed acquisition strategies are the keywords for the industry in the short term. At the same time Mr Mane advises that the current scenario offers good opportunity for occupiers in the real estate landscape which is still under stress in terms of supply-demand mismatch.

HDFC Venture’s K G Krishnamurthy in his article on “Changing Dynamics of Office Spaces: An India Perspective,” says Indian commercial real estate has reached a stage where it is preparing itself for the recovery ahead. Given the current scenario where supply is much more than the expected demand in the next three years, commercial projects with better attributes and rational valuations will emerge as winners.

The book also has taken up the important Corenet themes on “Growing cities and evolving workstyles, global influences,” which have impacted India more than anywhere. “Even as cities are the

centres of prosperity and progress, the lack of infrastructure and long term planning, are equally at the centre of their decadence and the future holds a nagging worry about the kind of development we will see,” says Michael Holland, CEO, Assetz Group and Learning Chair for Corenet Global, India Chapter.

“The Performative Workplace” piece by Stephen Atking of Skidmore Owings and Merrill LLP, discusses some of the key components of the dynamic work environments in today’s business. The article draws attention to how companies are transforming their physical environments into active instruments for achieving their goals. This entails better layouts and infrastructure to enable employees to do more with less space by supporting their work pattern. Technology and the knowledge worker’s contribution are the key drivers for ehanced productivity.

Sustainability and green architecture are the driving principles in today’s environment. Christopher Benninger’s Platinum LEED certified and Griha Five star rated Suzlon One Earth project, in Pune is a fine example of this. Architect Christopher Benninger goes about explaining how he has gone about designing this

masterpiece, which incidentally won the Property Awards 2010, for the Best Green Building, instituted by us.

We are grateful to the contributors to this publication, who have spared their time and shared their knowledge and expertise spanning across sectors. A big thankyou to the advertisers without whose partnership and support we could not have brought out the publication.

We at Property World, share common interests with you, and will continue being a medium to address your needs and aspirations through various vehicles. We look forward to meeting you at our Offices Conferences scheduled in Delhi, Mumbai and Bangalore (details in the book). Also do keep your calendar free in December to participate in the Property Awards. We will also be creating more handbooks like this on various relevant topics for further knowledge dissemination.

We thank CoreNet to allow us to be part of this Conference and look forward to partner them in all their future conferences.

Vijay [email protected]

Growth is Back…

10

Against a backdrop of improving economic performance across the world, the global

office market started to recover from one of the quickest and most severe downturns recorded. 2010 witnessed a pick-up in demand across most markets which, along

with a dearth of new construction activity, pushed down levels of supply. Global office market rents increased marginally by 1 per cent, with rents in all regions (bar the Middle East and Africa) moving back into positive territory over the year.

Stronger demand resulting from an increase in business activity

caused rents to climb in a growing number of countries. The recovery was led by the Asia Pacific region where rents increased by 8 per cent over the year. Hong Kong and Beijing saw huge jumps in rental growth of 51 per cent and 48 per cent respectively. India was an integral part of this growth story

where rentals increased in the range of 5-15 per cent in major micro markets across the leading commercial centres of India.

Once again, South America showed the best performance in terms of rents, recording rental growth of 12 per cent in stark contrast to North America where

G l o b a l O v e r v i e w

Global office market out of recession: Positive rental growth

11

rents were stable. The Brazilian economy enjoyed one of the quickest and strongest recoveries in the world after the recession and this was reflected in its real estate market with rents rapidly rising. After recording the steepest rental declines in 2009, Asia Pacific saw a sharp bounce-back in values and recorded one of the best performances in terms of regional rental growth, with rents increasing on average by 9 per cent. The overall increase in rents was mainly driven by a sharp rise in a number of key markets in the region, most notably Hong Kong.

The pattern across Europe was one of rental stability, although growth was just about positive year-on-year. Recovery in rental values was led by London, where a sharp uplift in rents was evident in 2010. Letting activity was at a 10-year high fuelled by a number of pre-lets, while the supply of good quality space diminished.

Africa and the Middle East were the only regions to see a continuing decline in rental values

during 2010, with an average decrease of 10 per cent recorded. This was primarily due to significant falls in rents in Oman, Bahrain and the UAE. Manama and Muscat saw the greatest decline in rents at 33 per cent and 27 per cent respectively, while rents in both Dubai and Abu Dhabi also fell markedly, recording rental declines of more than 20 per cent over the year.

This varying speed of rental increases around the world resulted in some movement in terms of the relative cost of occupying office space in cities across the world. Hong Kong moved back into first position, up from third, swapping places with Tokyo, while London’s West End remained the second most expensive location to occupy office space. The difference in occupancy costs between Hong Kong and London West End is minimal, but there is now a considerable differential

between these two cities and Tokyo.

Looking forward, as with 2010, future economic growth rates will vary, not only from region to region but also country to country. As such, the pace of recovery in the office market should follow that of the overall economy, and most markets will see steadily improving levels of activity. In most cases a rapid expansion in demand is not anticipated although prospects for employment growth will slowly pick up. What’s more, the potential shortage of good quality space is a significant driver in many markets, and coupled with the prospects of an uplift in rents, this may spur some occupiers into acting sooner rather than later. It is anticipated that rents will remain on a steady upward trajectory, before seeing stronger growth into 2012 and 2013.

Situation in the Americas There was an

improvement in rental performance within the Americas region in 2010. However, this was primarily as a result of significant rental growth seen in South America over the year, with Brazil in particular witnessing a rise in rental values of over 25 per cent in 2010. As a result, two of the three most expensive locations within the

Americas region were from Brazil. There was a notable polarisation between North and South America in terms of rental performance over the year. North America saw rents move up by 1 per cent as occupier demand remained sluggish across the majority of locations. In contrast, rental growth in South America amounted to 12 per cent, which was the highest sub-regional rise in rents recorded across the globe.

As a result of the significant growth in rents seen in 2010, the most expensive location in the region was Rio de Janeiro. This is the first time that a South American location has been the most expensive within the wider Americas region. Rental levels in Rio de Janeiro rose by almost 47 per cent over the year and the city moved above New York (midtown) as the most expensive location within the wider region. The Brazilian economy continued to grow apace in 2010, and, as a result, occupier demand in the major Brazilian cities rose further.

Moreover, both Chile and Venezuela saw a steady rise in rents over the year, moving up by 8 per cent and 13 per cent respectively.

Source: Cushman & Wakefield, February 2011

Global: Annual rental growth over five years

-15%

-10%

-5%

0%

5%

10%

15%

20%

20102009200820072006

Ren

tal C

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Global: Cities with largest rental growth in 2010

€0

€500

€1000

€1500

€2000

Prime Rent

Lima C

BD

Shan

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CBD

Lond

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ity

Lond

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Ho

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Rio

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Beijin

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Hon

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Annual Rental Growth

Ren

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Global rental performance in the year to December 2010

Country Rental Performance(% of Countries Showing)

Average Rent 353

€/sq. m./Year

Average Rental Change 1%

% Change

Fall StableGrowth

12

The only South American location to see rental values fall in 2010 was Argentina, where rents eased down by 3 per cent over the year. The

primary Buenos Aires market was subdued as tenants were focused on consolidation and lease renewal rather than expansion plans.

Rental growth in North America was much more subdued than in South America, with Canada experiencing a 1 per cent rise and the US seeing a slight decline of 2 per cent over the year. Most cities within the US saw rents fall over the year as occupier sentiment remained largely subdued. However, rents in the prime midtown

New York sub-market rose by 10 per cent as the city emerged from the recession faster than the rest of the nation. As a result, demand recovered sufficiently to push rental values upwards over the year.

In Canada, market activity remained focussed upon city centre locations although demand levels held firm rather than exhibiting notable growth over the year. In terms of nationwide rental growth, Vancouver was the tightest market

in 2010 and consequently rents moved up by 7 per cent over the year. The Mexican market was also


Asia: Annual rental growth over five years

-20%

-10%

0%

10%

20%

30%

20102009200820072006

Ren

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Americas: Cities with largest rental growth in 2010

£0

£200

£400

£600

£800

£1000

Cost

Tor

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CBD

Mex

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BD

São

Paulo

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Phila

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D

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s

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cas C

BD

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CBD

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50%


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14

relatively subdued as the economy recovered from the recent recession. Rents in Mexico City eased by 4 per cent in 2010, with the outlook for 2011 looking more positive with growth expected to be slow but steady.

Europe, Mid East, Africa

In 2010 there was a marked difference in rental performance between locations in Europe and those in the Middle East and Africa. Rents across Europe moved up by 1 per cent as a slow economic recovery gathered pace in some parts of the region with a number of locations witnessing notable rental growth.

Although the picture across Europe was largely stable, there were specific locations that recorded strong rental growth. The most significant growth was seen in the UK, most notably in Central London, where rents in the city grew by 25 per cent over the year and those in West End moved up by 27 per cent. Other large Western European countries to see a recovery in rents were France and Italy where the recovery was led by rents in Paris (CBD) moving up by 9 per cent and Milan by 10 per cent over the year.

However, prevailing economic difficulties witnessed in some Western European markets was

also reflected in a very cautious occupational market and a further decline in rental values. For example, rents in Ireland, Spain and Greece fell by 19 per cent, 7 per cent and 3 per cent respectively over the year.

In Central and Eastern Europe (CEE), both Bulgaria and Romania saw still weak demand and an excess of supply; consequently,

rental values fell by 9 per cent and 5 per cent in 2010. However, across the CEE region, rental values were largely unchanged, with the positive rental growth seen in Russia, Lithuania and Ukraine helping to balance the reductions seen elsewhere.

In the Middle East and Africa, rental levels fell as many locations continued to experience excessive supply as developments started before the crisis were completed. This will rise further in 2011, but in some areas demand should also improve as tenants look to take advantage of their power in the market to upgrade or renegotiate. In terms of rental growth, 2010 saw a further decline from the levels seen in 2009.

After being responsible for most of the rental growth seen in the region in the previous year, rents in South Africa fell by 10 per cent across the country. However, indicators for 2011 are more positive. n

Source: Cushman & Wakefield ResearchOffice Space Across the World 2011


Asia: Cities with largest rental growth in 2010

£0

£500

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Cost

Pune

CBD

Man

ila O

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Bang

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CBD

Singa

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Shan

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CBD

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Ren

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Asia rental performance in the year to December 2010

Country Rental Performance(% of Countries Showing)

Average Rent 441

€/sq. m./Year

Average Rental Change 9%

% Change

Growth Fall

ASIA OVERVIEW

Reversing the dramatic fall in rents seen in early 2009, the Asian region witnessed 9 per cent rental growth over the last year. As a result of strong economic growth, the region rebounded rapidly in 2010 and has been the driving force behind global rental growth.The region held its position at the top of the global ranking for occupancy costs with two of the top three most expensive locations in the world located in Asia. Hong Kong overtook Tokyo and London to become the most expensive location, while Tokyo slipped two places to third. Rental values in Mumbai CBD held firm over the year and was placed sixth in the occupancy cost ranking. However, prime rents in Hong Kong are twice as high as those in Mumbai, indicating the recent rise in rental values and the scale of rents in the Hong Kong market.Rental levels in Hong Kong soared by 51 per cent over the year. Occupier demand levels were robust throughout 2010, with more corporate expansions and new firms setting up operations. Strong demand and limited availability of Grade A office space were the major drivers for rental appreciation. This was a situation similar to that seen in the Beijing office market, where rental rates exceeded their peak in

2008 and grew at the rate of 48 per cent over the year. The surge in rental rates was largely underpinned by the lowest vacancy rate seen in the last decade and increasing occupier demand.Many of India’s corporate expansion plans that were put on hold as a result of the financial crisis were executed in the first half of 2010, resulting in a healthy revival of the office market nationwide. While rental values held firm in Mumbai, Bangalore witnessed growth of 13 per cent over the year due to strong demand ahead of supply. 2010 was a year of significant turnaround for Singapore’s office market and rental levels grew by 16 per cent. Rental growth was fuelled by the rapid expansion of multinational companies coupled with an improved business outlook and limited new supply of Grade A space.In contrast to the prevailing regional trend, rents in Tokyo fell by 11 per cent over the year. However, Tokyo remained the third most expensive location in the world. The office market was marked by very limited letting activity and most occupiers focussed on lease renewal negotiations rather than relocation. In fact, Tokyo remained a tenant’s market in 2010, with vacancy rates rising and average rental levels decreasing.


16

A s i a P a c i f i c O u t l o o k

The year 2010 marked the second year of recovery, with just about every country in the Asia Pacific

region posting strong results. While China has certainly played a pivotal role in driving the recovery, the region’s rebound has been remarkably broad-based. Real GDP growth surged across the board in the first half of 2010, but moderated to more sustainable rates over the balance of the year.

All together, the 2010 consensus estimate for real GDP growth was

6.9 per cent, with Singapore, China, Taiwan and India leading the way as the fastest-growing economies in the region. By comparison, the regional economy expanded by only 1.9 per cent in 2009.

A Cushman & Wakefield 2011 outlook says the recovery in Asia Pacific is particularly impressive because it reflects the significant expansion of internal markets. Notably, domestic demand has been a driving force of growth, supported by rising employment and incomes as well as government

stimulus efforts. In China, private consumption alone is estimated to have risen nearly 10 per cent in 2010. Additionally, strong intra-regional trade is fueling export activity and has served as a powerful growth impetus for the region.

As the recovery gathers steam, many countries have begun to wind down the expansionary monetary policy enacted in 2008. China and India were the most proactive in tightening policy, while Japan was the main exception as persistent deflation has led the Bank of Japan

to pursue an accommodative policy. Notably, policymakers are attempting to contain inflationary pressures arising from economic gains and rein in property prices to prevent asset bubbles. However, such action has also created a conundrum among policymakers. Higher interest rates have been a magnet for international capital, and increased capital flows tend to lead to currency appreciation. With currencies in the region already strengthening against the US dollar in 2010 and raising concerns about

Asia Pacific-strong growth outlook

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the effects of fast-moving capital flows on growth and currency competitiveness, many countries intervened in currency markets to clamp down on further rises.

The region’s economic resurgence in 2010 also helped the office market to stage a spectacular recovery. Asia Pacific was the first region to report an improvement in market fundamentals, with declining vacancies and rising rents posted in most markets. Rents for Grade A properties in Beijing even achieved all-time highs in the final quarter. Financial companies domiciled in Singapore, Hong Kong and Shanghai made a strong comeback as they resumed expansion programs. They accounted for the lion’s share of all new transactions completed in 2010 in these growing financial centers with Citigroup (Singapore), Barclays Capital (Singapore) and Morgan Stanley (Shanghai) signing the largest leases in the region in the fourth quarter of 2010. Swiss private bank Julius Baer also announced that it is growing Asia into its second home market.

Meanwhile, IT firms in India have been expanding their footprint. Cognizant was the most active tenant, leasing more than one million square feet in Chennai, Pune and Hyderabad.

Similarly, investment activity in the region continued to witness a rebound. Sales volume totaled $293 billion in 2010, just shy of the all-time high of $268 billion in 2007. While sales of office properties have remained the highest, investors have stepped up their purchases of other commercial properties, indicating the region’s growing appeal to the investment community. Additionally, the decline in asset values in core markets that began in the second quarter of 2008 had reversed its course by the second quarter of 2010. For office properties, average prices for Grade A buildings in core markets are up 20-40 per cent after hitting a trough in the first quarter of 2010.

The case for Asia-Pacific’s growth prospects remains intact, even though global conditions will remain challenging due to slow growth in

the US and the sovereign debt crisis in Europe. Several factors underpin this forecast. First, domestic demand across the region will continue to rise, thus reducing its traditional dependence on exports. Efforts to stimulate domestic demand outside of monetary and fiscal policy are already under way.

In China, expanding domestic demand was set as a priority of its 12th five-year plan as a response to the recent financial crisis. At the same time, steady economic progress will foster job and wage gains that feed into rising affluence in the region and therefore support private consumption. Second, China’s role as a key driver of regional demand will buoy economic growth. Already, China accounts for more than half of the imports in the region, and this trend is likely to hold and help temper a slowdown in demand elsewhere. All of this, combined with generally favourable demographics and continued public investments, has the potential to support real GDP

regional growth of 5-6 per cent over the next two years.

Of course, risks loom. Strong economic growth prospects could heighten inflationary pressures and lead to further rate hikes in a number of countries, which in turn could fuel currency appreciation and erode the region’s export competitiveness. Other downside risks to this forecast include an overly aggressive fiscal and monetary adjustment that could up-end recovery. Additionally, stronger economic growth in the US could result in an exodus in capital flows from the region.

Nevertheless, Asia Pacific’s solid macroeconomic backdrop should sustain in the office sector. Brisk economic conditions will continue to fuel employment growth and, in turn, sustain leasing activity. As a result, office vacancies will continue to dip gradually and push up rental rates in most markets of the region. n

Source: Cushman & Wakefield ResearchEconomic Pulse

Source: Real Capital Analytics

Global investment volume (in US$)

$0

$100$200

$300$400

$500

$600$700

$800

$900$1,000

$1,100$1,200

$1,300

snoilliB nI

Americas $556.90 $158.31 $58.08 $135.76

EM EA $403.02 $225.77 $120.48 $153.71

Asia Pacific $268.17 $161.38 $226.40 $292.54

2007 2008 2009 2010

Source: Cushman & Wakefield, Global Research Group

Asia Pacific CBD office market cycle Q42010

Rent growth acceleratingIdeal for owners of property

Rent at or near bottom of market cycleIdeal for tenants leasing or seeking to lease property

Rent still elevated but falling from top of market cycleFalling rents promise future opportunity for tenants

Rent growth slowingStill landlord favourable but growth is down from peak

TEN

AN

T FA

VO

UR

ABLE

Slow Growth

Recovering

Accelerating

Downturn

Tokyo

Hanoi

Brisbane

Bangalore, Singapore

Shanghai, Northern Capital Region

Beijing, Mumbai

ChennaiHyderabad

Pune

HCMCChengdu

MelbourneSydney

Seoul

Hong Kong

Jakarta

LAN

DLO

RD

FAV

OU

RA

BLE

20

Hong Kong overtook Tokyo and London to become the world’s most expensive office

location while Rio de Janeiro rose from the 13th position to the 4th.

The annual report, Office Space Across the World 2011 by Cushman & Wakefield, says a sharp rise in rental values in Brazil’s commercial capital Rio helped it overtake many

top 10 veterans including New York (5th), Mumbai (6th), Moscow (7th) and Paris (8th).

Apart from being overtaken by Rio, Mumbai CBD lost one position on the global ranking also because it has not seen any change in rental values over the previous year. Contrary to the growth story in the rest of Asia, Mumbai CBD maintained a stable occupancy

cost of Rs 300/sqft/month over 2010.

Key office markets around the world have seen sharp increases in rents, according to the report. After recording the largest rental declines in 2009, Asia saw a sharp bounce-back in values in 2010 with rents in Hong Kong rising by 51 per cent. Bangalore CBD and Pune CBD ranked 8th and 10th respectively as

the top 10 locations in percentage increase in rental values in Asia.

Said Arvind Nandan, Executive Director, Cushman & Wakefield, India, “Asian markets have been recovering and growing at a much faster rate than their European or North American counterparts.”

Hong Kong, Melbourne and Singapore will remain the tightest office markets in the region, while

A glance at the world’s most expensive offices

A s i a P a c i f i c S c e n a r i o

21

Rank 2010 Rank 2011 City, Location Country Occupancy Cost Occupancy Cost €/sq.m./year $/sq.ft./year

3 1 Hong Kong CBD China 1,931 2412 2 London West End UK 1,872 2331 3 Tokyo CBD Japan 1,334 16613 4 Rio de Janeiro CBD Brazil 965 1206 5 New York Midtown USA 920 1155 6 Mumbai CBD India 916 1147 7 Moscow CBD Russia 868 1088 8 Paris CBD France 835 10410 9 Zurich CBD Switzerland 786 989 10 Milan CBD Italy 729 91

source: Cushman & Wakefield

The world’s most expensive office locations in 2011 pockets of temporary weakness could sprout in Shanghai and Mumbai due to the influx of new office supply. On investment sales, better office fundamentals will continue to spur activity particularly in the region’s financial centers – Hong Kong, Singapore, Shanghai, Tokyo and Sydney. Barring any economic shock, transaction volumes could rise another 20 per cent this year, while prices for Grade A office properties could climb another 5-10 per cent.

22

B a c k t o G r o w t h

Rank Location Country Submarket Rental Rent growth

1 Hong Kong Hong Kong CBD 51.29% 1726.552 Beijing Beijing CBD 47.81% 536.303 Astana Kazakhstan CBD 33.33% 422.184 Ho Chi Minh City Vietnam CBD 28.57% 402.505 Almaty Kazakhstan CBD 28.57% 474.966 Shanghai China CBD 28.00% 470.567 Singapore Singapore CBD 15.55% 597.518 Bangalore India CBD 12.68% 213.609 Manila Philippines Ortigas 12.50% 108.4210 Pune India CBD 9.09% 160.20

Source: Cushman & Wakefield

Top ten locations (% age rental growth €) in Asia

Barrie David of the Cushman & Wakefield Research Group said, “We are seeing the sustained presence of Asian locations in the upper reaches of our ranking. Tokyo and Hong Kong are now firmly established as some of the most expensive office locations globally, and three of the top six

locations in our ranking are from the Asian region. This is in contrast to 10-15 years ago, when the most expensive cities were generally found in Western Europe and North America. It highlights the recent growth and development within an increasing number of Asian markets over the last few years.” n

A s i a P a c i f i c S c e n a r i o

24

By Pratap L Mane

A window of opportunity for occupiers

After nearly two years of a global financial crisis, the Indian economy is believed to have

not only sustained itself through the recession, correction and fear, but also demonstrated that the fundamentals often talked about (such as strong domestic consumption, development of infrastructure, availability of talent, low cost base, independent judicial system and pro-active state and central governments) have created opportunities across sectors and geographies. Both the industrial and

services sectors continue to play a strong role in India. The GDP for India in 2010 was 8.8 per cent and is projected to remain close to 8 per cent until 2015.

Corporates in India are poised at the right threshold to take a giant leap in the years to come. A significant number of these corporates are thinking of doubling their turnover and market cap. The impact of this has obviously reflected on the real estate sector, which I believe has bottomed out in the current cycle. The experience gained in this slowdown is

invaluable and will serve real estate strategists for years to come. The various stakeholders in the supply chain – the materials manufacturers,

developers, property consultants, occupiers, investors and policy makers – have all emerged stronger.

If we have taken our lessons

Source: World Economic Outlook Database, IMF, October 2010

Real GDP growth of top eight economies (in terms of Y-O-Y change)

-11.0-9.0-7.0-5.0-3.0-1.01.03.05.07.09.0

11.013.015.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

Rea

l GD

P G

row

th R

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(%)

China India Russia Germany United States United KingdomFrance Japan

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B a c k t o G r o w t hOccupier’s Perspective

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from the economic slowdown, ‘Proactive portfolio rationalisation,’ ‘caution’, ‘diligence’ and ‘well-timed acquisition strategies’ are the keywords for the industry in the short term. Stakeholders can’t afford to sway on the riding waves of healthy demand, and lose the ground advantage that they have so painfully regained by adapting to the rapidly changing business environment.

Market challenges: An opportunity for the occupier

The year 2011 is a year of opportunities for corporate occupiers in India. The reason I say this is because the current real estate landscape is still under stress and would usher in a new decade of opportunities for Indian real estate

which will be a test of sorts for its stakeholders between these two fringes of the fulcrum.

A considerable sum of institutional capital has been invested in the real estate sector, but unfortunately only a few of them may have actually seen any return or profit. The increase in residential prices by 30 per cent to 40 per cent in the last 12 months has led to a slowdown of residential transactions, particularly in NCR and Mumbai, resulting in aggravating pain to the sector due to the limited cash-flow available to the developer. Consequently, a lot of developers who have recently borrowed expensive debt from non-banking financial corporations and banks at 15 per cent to 17 per cent interest rates to fund land acquisitions and construction finance respectively

are under tremendous stress. As a matter of fact, some of them are borrowing from high net worth individuals at high interest rates of 20 per cent. Simultaneously, the growth continues to fuel inflation, forcing the central bank (Reserve Bank of India) to increase lending rates which has changed more than seven times during the last 12 months. The central bank has also cautioned banks to lend judiciously to the real estate sector.

Picture high demand and growth from corporates leading to higher absorption in the office segment, and falling developments in the space due to stress in the sector, and it’s only a matter of time before ‘relevant supply’ will get quickly consumed, forcing rental and capital values to go up by 2012. As a matter of fact, front-

office micro-markets such as the Bandra Kurla Complex in Mumbai are already witnessing a steady rise in rental and capital values in the short term in 2011. So what’s the right strategy for corporate occupiers ? I believe the winners would be the ones who balance caution with diligence, evaluating all the potential opportunities with pragmatism and in time.

Outlook: Office real estateThe commercial office sector

entered a phase of gradual recovery in 2010, when firms began charting their expansion plans and strategically assessing the abundant real estate options in the market. The rate of decline of property prices slowed down considerably and was recorded to be stable across most of the micro-markets by the end of

Source: Real Estate Intelligence Service (JLL), 3Q10

Office Property Clock and the Strategic Window of Opportunity

VALUE DECLINING

VALUE RISING

GROWTH SLOWING

DECLINE SLOWING

MumbaiNCR-Delhi

BangaloreChennai

PuneHyderabad

Kolkata

Hyderabad

ChennaiBangalore

KolkataMumbai

NCR-Delhi2Q08

2Q10

2Q09

MumbaiNCR-Delhi

Bangalore

PuneChennai

HyderabadKolkata

3Q11F

STRATEGIC WINDOW OF OPPORTUNITY

Office rents to start appreciating after mid-2011

The effect of strengthening absorption of office space in the past 3-4 quarters has already resulted in a stabilisation of rental and capital values in most of the markets. The period from 2Q10 to 3Q11 provides a strategic window of opportunity for both buying and leasing office space when both rental and capital values are at their cyclical lows (see Figure alongside). Capital values are typically a leading indicator, and signs of the strengthening of capital values in selected micro markets have already been witnessed.Several markets which were dormant during 2010 with respect to property rates will register an appreciation in valuations. The prime markets of Mumbai, Delhi and Bangalore are ahead in the property cycle in terms of transactional volumes, and should be the first to register rental growth in 2011. However, the oversupplied suburban markets might still feel the pressure of inadequate demand levels and will be late to recover. Adequate volumes of office supply will keep hitting the markets every quarter, thus keeping the segment interesting for occupiers as well as investors.

Sustained traction for IT SEZ spaces

Developers who are planning to build SEZs or have got approval for the same should begin construction quickly to satisfy the March 2014 deadline for units to occupy spaces.Among the Indian cities, Pune, Hyderabad, Chennai and Kolkata have a

balanced supply of IT and IT SEZ projects. Mumbai, Bangalore and NCR-Delhi have a larger supply of IT projects and relatively fewer IT SEZ projects in the pipeline.

26

Proposed projects to begin construction

As of October 2010, a total of 88.2 million sq ft of office space is proposed in the top seven Indian cities, supplemented by 161.1 million sq ft of office space that is under construction, implying that they have broken ground but are yet to become operational (see Figure alongside). In 2009 and 2010, developers focused their attention and efforts on the execution and delivery of projects that were under construction. Increased confidence in the sector will ensure that some of the proposed projects (which are lying inactive) start witnessing construction activity and get launched in the market during 2011. Despite this, the focus would remain on execution and delivery of ongoing projects.

Ready for Fit-Outs5%

Less than 50% Structure Ready

17%

Proposed35%

Excavation / Upto Plinth 20%

50-100% Structure Ready 23%

More outright purchases by occupiers as well as private equity players

As of 3Q10, a majority of the commercial markets in India are undervalued relative to rental decline implied by the greater decline in capital values than rental values during 2Q08-2Q10. With this fundamental attribute favouring purchase of office properties, a rise in the share of outright purchases has been witnessed in the Indian market.The share of outright purchases in total transactions has increased from being 4-5 per cent in 1H08 to 13-15 per cent in 2010 (see Figure alongside). This trend is likely to continue in 2011 as well as several private equity funds as well as occupiers evaluate the buy-versus-lease options and look ahead towards acquisition of office space at reasonable capital values.




Stages of Construction of Future Office Supply (As of 3Q10)

Share of Sale Transactions in Total Recorded Transactions (1H08-1H10)

Completed and Ongoing Instances of Refurbishment of Office Space at Prime Locations

4.2%

9.0%

11.4%

13.0%

14.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1H08 2H08 1H09 2H09 1H10

Sale

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2%

4%

6%

8%

10%

12%

14%

16%

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Tot

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Lease Transactions Sale Transactions % Sale Transactions in Total Transactions

Retrofitting of prime locations

With several prime central locations of the cities reeling under inadequate urban planning and outmoded architectural standards, refurbishment of office projects is expected in Indian cities. We have already witnessed instances of retrofit during the past 2-3 years, and this is likely to continue as owners and occupiers see value in upgrading their real estate holdings to the investment grade category (see Figure alongside). This will also imply increased attention towards sustainability as the retrofitting process would upgrade the existing high energy consuming facilities with more efficient projects.

Property Location Expected Completion

HT House - Press Building KG Marg, Delhi 2009Prestige Delta Richmond Road, Bangalore 2010Ashoka Raghupati Chambers Begumpet, Hyderabad 2010Meenakshi Technopark Kondapur, Hyderabad 2010KMDA Property Sealdah, Kolkata 2010Hindustan Unilever Fort, Mumbai 2011Coke Factory Shankar Market, CP, Delhi 2011Avani Heights Chowringhee, Kolkata 2011

Occupier focus shifting from consolidation to expansion strategies

The years 2009 and 2010 witnessed several instances of consolidation and functional decentralisation of office spaces as several corporations restructured their real estate portfolios. However, by the end of the year, several expansion plans were being put in place, particularly led by the IT/ITES and BFSI sectors. During the slowdown, when these two

sectors were either stable or downsizing, the sunshine sectors – telecom, pharmaceuticals, semiconductors, healthcare and education – were expanding.The year 2011 should witness a greater number of expansion plans by corporations riding on good business sentiments.

B a c k t o G r o w t hOccupier’s perspective

27

Activity Radar for 2011

• Mumbai would leave Bangalore behind as the city with the highest office space supply by the end of 2011.

• Gurgaon projected to be the leader in terms of demand for office space with 4 million sq ft of net absorption projected in 2011. Of this, NH-8 alone would contribute 60 per cent of the demand.

• Hyderabad and Pune are the only cities with a good mix of IT and IT SEZ projects in supply.

• Around 10 million sq ft of office space will become operational in the Gurgaon and Mumbai suburbs each during 2011, the highest among all the micro markets.


Major Sectors Contributing to Office Demand

IT/ITES, BFSI would continue to account for 60-70 per cent of office demand

Nearly 60-70 per cent of the demand for office space during the past years has been contributed by the IT/ITES and BFSI sectors (see Figure alongside).IT and IT Enabled Services (ITES) have been the key drivers of the demand for office space in India during the last decade. India’s IT-ITES exports recorded 8.2 percent growth during FY2009–2010. According to the Department of Information Technology, the IT-ITES export revenue is expected to reach $60 billion and $72 billion by the end of FY2010–2011 and FY2011–2012 respectively.The Banking, Financial Services & Insurance (BFSI) sector has also been a key contributor to the demand for office space in India. At the end of FY2000-2001, the total number of offices of scheduled commercial banks in India was 65,919, which increased to 80,547 by the end of FY2009-2010. Several foreign banks (both commercial and retail) have set up shop in India over the last decade. Other financial institutions (such as insurance companies and securities firms) have also entered the Indian market and registered rapid expansion. In 2009 and 2010, 16-22 per cent of the demand for office space came from the BFSI sector.

53%

50%

39% 48

%

16%

19%

16%

22%

5% 11%

8%

8%

7%

17% 10

%

18% 13%

20% 17%

3%

0%10%20%30%40%50%60%70%80%90%

100%

2009

1Q10

2Q10

3Q10

Shar

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Offic

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from

Vario

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Others

Manufacturing / Industries

Telecom

BFSI

IT / ITES

More inter-city competition among IT/ITES destinations

At the peak during mid-2008, only 38 per cent of the operational office stock was available for leasing at less than $1 per sq ft per month. After the market crash, nearly 62 per cent of the operational office stock in India is available for leasing at less than $1 per sq ft per month. While the slowdown has ensured a greater affordability of office space to the occupier, it has grouped several cities into a narrow band of rents.

Since most of these markets are the IT destinations of Bangalore, Chennai, Pune, Hyderabad and Kolkata, the inter-city competition to garner demand from the sector would be high in the coming years. The key to success would be diversifying the occupier base into other sectors such as BFSI, manufacturing, logistics and consulting services.

the year. Despite a rise in absorption levels and the stabilisation of rents, construction delays have resulted in the deferment of supply of office projects across Indian cities. However, upbeat over the tremendous response in the residential sector, developers are increasingly focusing their energies on execution and delivery of office space rather than launching new ones. Outright purchases increased

during the year, mostly by office occupiers who re-explored their exposure to real assets for the accompanying benefits.

Overall, we believe that 2011 will be a strategic window of opportunity for occupiers and investors when rents and capital values in most of the micro-markets would be at their cyclical bottom and remain undervalued. Several markets have already shown

signs of steady revival in terms of strengthening of demand for office space as well as an increase in capital market transactions.

The year 2011 should see more wealth being created across industries in India; this will trickle down as demand for real estate. We forecast the absorption of office space across the top seven cities of India to grow nearly 1.8 times from the 19.6 million sq ft recorded in

2009 to 35.7 million sq ft in 2011. n

Pratap Mane is Director Head –Corporate Real Estate & Services, South Asia, Deutsche Bank AG, besides being the Chapter Chair for India for CoreNet Global. He has over 27 years of varied work experience in corporate real estate functions in reputed organisations such as Deutsche Bank, J.P. Morgan Chase, Bharti Televentures, ANZ Grindlays Bank, Taj Group of Hotels and U. S. Consulate.

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By Michael Holland

C o r e n e t T h e m e

Growing cities, evolving workstyles & global influences in India

As we pause to ponder on the changes which we have seen in India in the last 10 years, the

first decade of the 21st century, we can get some flavour of the huge changes which we can anticipate in the next decade. Just 10 years back, when we turned the millennium, we were worrying about the Y2K bug, we’d never seen a smartphone, no iPod, no Nano. Volvo was Swedish, Jaguar was British, Bin Laden was a construction company, Friedman was an economist and no one had heard of Incredible India – just a decade back.

All the change we have witnessed in India in the last decade leads one to give more than a pinch of salt to the breathtaking projections put forward by McKinsey in their report India’s Urban Awakening.

We are experiencing the largest urban migration in history. Each week, nearly one-and-a-half-million people move to cities, almost all in developing markets. The economic impact: dramatic gains in output per worker as people move off subsistence farms and into urban jobs. China and India

are seeing labour productivity grow at more than five times the rate of most western countries as traditionally agrarian economies become manufacturing and service powerhouses.

By 2030, in less than 20 years, McKinsey project that the GDP of India will have quintupled and 590 million people will be living in urban India. That’s nearly twice the population of the US today. They forecast that there will be 68 cities in India with a population of more than one million, up from 42 today. Europe has 35 such cities today. Some 800 million square metres of residential and commercial construction will be required to be delivered – the equivalent of a new Chicago every year for the next 20 years – to service this growing population and economy. Clearly, the cities of India are at the heart of India’s economic transformation.

That transformation is also present in the way in which the global workforce is operating. ‘Evolving’ is too slow – fossils and dinosaurs come to mind. This change has done its work in one generation. Our workstyle has been transformed by technology wherever we are in

the world, and no place has been impacted more by technology than India. Technology is at the heart of India’s $70 billion IT/BPO industry, an industry which has been responsible for 45 per cent of all incremental urban employment in the last decade.

But with this growth comes some not insignificant growing pains. Without skillful management, cities become centres of decay, gridlock, crime, urban sprawl, slum housing and pollution. The quality of life deteriorates and

economic dynamism falters. One blogger recently commented “from Garden City to Garbage City” in his description of India’s answer to Silicon Valley. Huge increases in car ownership create environmental challenges for the urban environment. Increasing aspirations and a high-gear economy drive energy usage to levels beyond breaking point.

Financing, governance, long-term planning and coherent policies around key areas including affordable housing and

Urban Spaces

30

transportation are critical to the urban growth phase which is all around us. That’s tough in practice when we have been in a political environment where policy has been driven by a rural vote bank and around short-term political gains.

But progress is there. The creation of transport infrastructure in the form of roads and metros can clog a city for a decade but leave a legacy for perhaps a century, as was the case for London and Paris

in the 20th century. Technology is at the heart of today’s progress in urban India, adding transparency and velocity to government services, increasing pressure for action on environmental issues or democratic change through social media, and allowing work anywhere, anytime through ubiquitous connectivity.

Still, for all of the theory on the economic benefits of urbanisation, as one sits in the regular gridlock of India’s metros, cocooned inside with

the mobile, wireless and a laptop, one cannot help but be aware of the trees being felled for road widening and metro construction, of water scarcity and power outages. There remains a nagging worry of where the development of the coming decade is heading—and more importantly, where it will end. n

Michael Holland has 25 years of international experience in commercial real estate in Asia, Europe and the USA. He is

presently CEO of Assetz Property Group, a company focused on the delivery of world class mixed use developments in India. The company has developed India’s first LEED Platinum rated Special Economic Zone–, Vrindavan TechVillage. Prior to joining Assetz, Michael was responsible for the functions of procurement & real Estate with Microsoft Corporation across Asia Pacific including India and China. Michael holds the position of Learning Chair for Corenet Global India Chapter and is also a member of the RICS India External Affairs Board.

City Micro Market Base Rents % Change in rental values Outlook (6 months) (INR /sq.ft./ mnth) over 12 months

Mumbai South (CBD-Nariman Point) 300 0% STABLEMumbai Suburban (Bandra-Kurla) 260 8% STABLENCR CBD Prime 250 3% STABLENCR CBD Others 161 -3% STABLEMumbai Suburban (Powai) NON IT 120 9% STABLEMumbai Suburban (Malad) Non IT 110 10% STABLEKolkata Park Street/Camac Street 103 5% RISINGMumbai Vashi Non IT 90 0% STABLEBangalore CBD/Off CBD 80 13% STABLENCR Gurgaon Prime Commercial 78 1% RISINGMumbai Thane Belapur Road Non IT 70 0% STABLEPune Off CBD (SB Rd & Wakdewadi) 64 7% RISINGChennai CBD - Anna Salai, RK Salai (Corporate) 60 7% RISINGNCR Noida Commercial * 60 4% RISINGPune CBD (Camp Bund Garden, Koregaon Park) 60 9% RISING

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15 Most Expensive Office Locations in India 2010

C o r e n e t T h e m eUrban Spaces

Source: Cushman & Wakefield

31

C o r p o r a t e S t r a t e g i e s

Demand for office space in Indian cities has been on a growth trajectory since the start of 2010 after a

lean period in 2008-09. In the face of severe cost pressures during 2008-09, most corporates curbed their real estate expenditure and expansion plans. The current demand for office space is the result of various strategies exercised by corporate occupiers including relocation, consolidation, de-centralisation and cautious expansion in tandem with their business plans. Major demand for commercial real estate in India comes from the IT/ITES sector followed by BFSI, consulting, media, manufacturing, pharmaceuticals and telecom. Although demand for office space is expected to inch upwards in the coming years, it will still lag behind the expected new supply to the market.

Real estate constitutes a large share of the operational costs of any corporate today. The recent slowdown has laid further emphasis on the need for analysing and rationalising the real estate portfolios of corporate occupiers. On the same lines, we witnessed various corporate real estate strategies being exercised in the past two years, and these

initiatives have paved the path for a new era of commercial real estate in India. The following were the key trends observed in the recent past that will guide the fate of various commercial real estate destinations in India in the near future.

Emergence of new CBDs Most Indian metros have their

CBDs in the centre of the city and were established in the British era.

Buildings in these precincts have become outmoded over a period of time and lack in terms of quality of space, services and maintenance. The favourable attribute in these CBDs were the tenant profile and established ecosystem of clients and competitors. In the last five years Indian cities witnessed substantial construction of contemporary offices in the secondary and suburban districts. In current times, occupiers

prefer to locate their businesses in these more contemporary locations. A major reason for this shift is cost arbitrage along with better quality space. A few of the business districts in India have the potential to outshine the CBDs of their respective cities due to multiple reasons like planning and infrastructure (Bandra-Kurla Complex, Mumbai), government initiatives (Whitefield, Bangalore), large-scale quality

By K G Krishnamurthy

Changing dynamics of office spaces: AN iNdiA PersPective

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developments (Gurgaon, NCR) and established ecosystems (Hinjewadi, Pune).

Occupiers are keen to explore new sub-markets within a city to remain competitive on their real estate costs. Connectivity, transportation networks, tenant profiles, quality of buildings and safe and secure environments for employees are the key considerations while choosing a location for business. In addition, proximity to major infrastructure facilities such as airports, five-star hotels, ports and established residential developments gives a boost to commercial development in a particular location. In each of the major Indian cities there are some sub-markets which are more equipped to cater to the need of an occupier than others, and they will

emerge as winners in the coming years.

Prices of office space in most Indian cities witnessed a correction in the range of 30-50 per cent across locations during 2008-2010. Towards the end of 2010, the commercial real estate market reached the bottom of asset values on the back of improved transaction activity during 2010 and a strengthening business environment.

Corporate occupiers applied various techniques to rationalise their portfolios during the past two years, and we witnessed a number of relocations and consolidations followed by cautious expansions. In the process of executing these strategies, we witnessed a good amount of en bloc purchases by end-users to achieve larger control over operations and capitalise on reduced

valuations at that point.Leasing space still remains the

preferred choice of most of the corporate occupiers, and a large chunk of office real estate follows that mechanism. Occupiers have shown a clear preference to lease in a building which has single ownership which in turn results in better maintenance and amenities and control over the tenant profile. Developers are also moving away from the concept of strata-title sale to en bloc sale to fetch a superior valuation.

Contemporary design In pursuit of operational

efficiency, corporate occupiers look at a set of building design parameters including floor efficiency, services, parking and maintenance. In addition to functionality, related building attributes like floor plate, floor-to-ceiling height, floor loading and mechanical services are key considerations to rationalise the real estate expenditure. Flexibility of layout is increasingly becoming more important among occupiers so as to extend or contract the space as per the need of the business.

Technology will play a critical role in changing the dynamics of workplaces. The concept of open offices has changed the way offices look today with a minimal number of cabins and large bays of workstations. Open office planning has resulted in higher employee density. Going forward, the concepts of ‘Plug & Play’ and ‘24x7 operations’ will guide the design of office spaces in India. A few corporates are also considering the sub-lease of space to agencies serving western markets

during non-office hours. In this way, the office space cost is shared by the main organisation for use in the day and another organisation for use in the night. These evolving concepts have different technical requirements in terms of electrical load, Internet bandwidth and HVAC, which would be required to be considered by developers in coming times.

With the increasing focus on sustainable development, occupiers have also started to show inclination towards taking office space in green buildings even if it comes at a premium.

Way forwardAfter the recessionary phase of

the last two years, Indian commercial real estate has reached a stage where it is preparing itself for the recovery ahead. Asset prices in most cities have reached the bottom, and transactions are picking up. During the past two years occupiers and developers have applied various strategies to achieve equilibrium in the ecosystem. Given the current scenario where supply is much more than the expected demand in the next three years, commercial projects with better attributes and rational valuations will emerge as winners. n

Mr. K.G,.Krishnamurthy, CEO, HDFC Property Ventures Ltd., has experience of over two decades in real estate and been widely consulted by the industry on real estate issues. In addition, he has offered his services to the Asian Development Bank - to develop a housing package for Project Affected Persons under Karnataka Urban Infrastructure Project, and to the US AID to build-up a mortgage market in Sri Lanka.

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C o r p o r a t e S t r a t e g i e s

honouring real estate excellence

ProPerty AwArds

Mark your calendar for the

Property Awards 2011

For more information contact Shahid AkhtarHead – Sales & Business DevelopmentT: +91-22-6769 2421 | M : +91-9004311999 | E: [email protected] www.pwindia.in

Date : December 9, 2011

Venue : Grand Hyatt, Santacruz Mumbai, India.

34

In today’s economic climate, every company is seeking to use resources more efficiently. But an ever-changing market

requires that businesses strengthen their competitive advantages at the same time. Peter Drucker once observed that “knowledge-worker productivity requires that the knowledge worker is both seen and treated as an ‘asset’ rather than a ‘cost.’”

The challenge for many businesses today is to adopt new work processes and new models of organisational culture without making major investments in real estate.

In response to these seemingly contradictory imperatives, the design of office environments is undergoing a paradigm shift. By adopting more strategic office designs, forward-thinking companies are transforming their physical environments into active instruments for achieving their goals. A better layout and infrastructure, for example, can enable employees to do more with less space by directly supporting their work patterns. Modular systems afford the tactical flexibility to adapt seamlessly to radical organisational change. Healthy office environments lead to fewer sick days, reduced health care costs, and better performance.

The modern workplace was born in the mid-twentieth century of a desire to make offices more efficient and knowledge workers more effective. As management realised that human capital is the key to business performance, they sought new environments designed to help people work better. With the economy in transition once again, companies are feeling a renewed imperative to get the most out of their employees and their real estate. Yet the context of work is more diverse than ever: some employees require multiple settings for different tasks, while others may work primarily from home or from the road. The most successful workplaces today are designed to support the specific kinds of innovation, collaboration, and focused work that employees do. Like urban environments, they offer density, a sense of place, and the infrastructure to encourage productivity.

As a design partner at Skidmore, Owings & Merrill LLP (SOM), I have helped both major Fortune 500 firms and small start-up companies to create new workplaces and revitalise obsolete ones. My clients have seen benefits ranging from dramatically lower real estate and operating costs to placing among Forbes’ top ten Best Companies to Work For. This

white paper discusses some of the key components of performative work environments geared for today’s business environment.

Precision diagnosticsThere is no one-size-fits-

all solution for the workplace. The scope of the project can be as simple as a three-week re-planning to optimise the office layout and recommend basic infrastructure improvements. A more comprehensive 12-week investigation might include blocking and stacking studies, cost/benefit analyses, and a pilot office.

Either way, an office revitalisation can only boost performance enough to justify its cost if it is tailored to the business’ specific needs. It is essential that designers study space usage analyses, benchmark comparisons, employee surveys, and growth projections. Digital models can be used to establish precise environmental technology criteria. A systematic needs assessment pinpoints which components of the workplace could be working harder.

Planning for radical change

A lean business needs an office tailored for the specific kinds of work its employees do. Financial,

legal, consulting and creative firms each have unique spatial requirements. Technology-savvy knowledge workers may require less support space and personnel, allowing a corporation to adopt a more efficient layout. By calculating the ideal size for workstations, designers can reduce a company’s footprint by 25 per cent or more. In turn, if individual heads-down space becomes smaller, a modest increase in social and team space often boosts productivity by stimulating collaboration.

Of course, it would be a mistake for any company to design with only today’s needs in mind. Agile corporations need to plan for multiple futures, making office design an open-ended problem. Designers should favour ‘looser’ workplace models that can be adapted without costly architectural reconfiguration. For example, bench systems provide greater elasticity than cubicles because they can accommodate varying numbers of workers doing different kinds of tasks. Single- or multi-floor neighbourhoods of related employees can be designed to expand or contract rapidly if the company needs to reorganise.

Strategic infrastructureEvery component of a high-

By Stephen Apking

O f f i c e I n t e r i o r s

The Performative Workplace

35

At the office of this Investment Fund Headquarters, trading stations are spaced 32” apart for optimum communication between employees, and a concentric layout gives the senior portfolio manager instant visual contact with every trader. The microperforated ceiling incorporates low-glare, low-maintenance neon lighting and high-performance mechanical systems.

performance workplace should be conducive to the task at hand. The office’s environmental infrastructure should be viewed as a strategic armature that creates ambient conditions conducive to work and makes it possible to reconfigure modular components easily. Calibrating this workplace model is a critical step in the design process, and may require testing multiple solutions or building a pilot to fine-tune the system.

For example, well-designed lighting can reduce eye strain

and fatigue, substantially boosting productivity. In a performative workplace, natural light provides primary illumination, with photosensors automatically controlling blinds and supplementing changing daylight conditions with electric light. An old, glare-producing ceiling with areas of high and low intensity can be replaced by a continuous low-contrast plane of light. Newer buildings often use pendant lights shining upward to create a luminous ceiling plane and illuminate the

work surface indirectly, shifting the old 9’-0” ceiling height to a new 9’-6” standard.

These lighting components can be integrated into modular ceilings with fire protection devices, acoustical control surfaces, and other building systems. Power and communications can be distributed under lift-out floor modules. Air can also be distributed under the floor, saving energy and increasing indoor air quality by delivering clean, conditioned air close to employees. The key is to design

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The U.S. Census Bureau Headquarters features fl exible neighborhoods of employees and amenities based on top corporate workplace designs. Automatically-dimming lights and healthy drywall, paint, and ceilings help the building earn LEED® Silver certifi cation. SOM designed custom PVC-free, biodegradable carpet tiles use reclaimed materials and dyes with minimal environmental impact. The carpet promotesemployee health and earns the maximum LEED points in its category.

these infrastructure components as integrated systems, scientifically analysing and optimising each component. Using Building Information Modeling technology, designers can study exactly how much natural light can be harvested. The effects of different air conditioning systems can be simulated to compare effectiveness and operating costs. Digital tools allow the design firm to hone the workplace for peak performance like a meticulously-engineered product.

Tactical reconfigurationWithin this infrastructure, an

agile organisation needs to be able to redeploy office components rapidly as needs change. Many companies work hard to minimise churn, or the movement of workers

within the organisation. After all, in a conventional workplace, a furniture move—in which the work area is substantially reconfigured—costs about four times as much as a simple box move from one desk to another. Yet the ability to make radical changes in team structure may be vital for a business’ success. The workplace should be designed to facilitate tactical reorganisation by adapting seamlessly.

This degree of flexibility is possible through the use of modular systems. A kit of parts of lightweight, acoustically-insulated partitions and workstations with spring-loaded connectors allows the layout to be changed on the fly. Bench systems can be designed to adapt to different work modes. Flexible components allow the interior to be reconfigured without wasting time or resources, so teams are not tied down to a single location, size or configuration.

Healthy environments, healthy employees

A workplace that promotes employee health can contribute dramatically to an organisation’s success by boosting job performance and cutting health care costs. The same architectural strategies that promote employee health tend to be good for the environment. Better mechanical systems and increased exposure to daylight lead to healthier environments and healthier workers—and help the company’s bottom line.

The US Environmental Protection Agency recognises the Sick Building Syndrome as acute discomfort


EXPLORING OPPORTUNITIES OVERCOMING CHALLENGES

17th June 2011, ITC Royal Gardenia, Residency Road, Bangalore

26th Aug 2011 Grand Hyatt, Santacruz, Mumbai

4th Nov 2011 Le Meridian, Janpath, New Delhi

Bangalore

Mumbai

Delhi

FFICES2011-12

oINDIA

CONFERENCE|EXHIBITION|NETWORKING

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Shahid AkhtarHead – Sales & Business DevelopmentT: +91-22-6769 2421 | M : +91-9004311999 | E: [email protected] www.pwindia.in

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Instead of the typical stratified organisation of an ordinary

office building, Global Hyatt’s Headquarters features a

connective cascading atrium that promotes interaction between

employees, reinforces brand image and provides a front-of-house

space to welcome visitors.

associated with a building and typically caused by inadequate ventilation or air contaminants. Studies have found that poor indoor air quality can diminish productivity by as much as 6-9 per cent.

To solve this problem, use non-toxic finishes such as paints that are low in volatile organic compounds. To further boost employee hygiene, some forward-thinking companies are adopting innovations from the design of healthcare facilities such as interior surfaces treated with silver ions to kill harmful microbes.

Companies can secure public recognition for their environmental initiatives through Leadership in Energy and Environmental Design certification. This program, developed by the US Green Building Council in 1998, now

includes a benchmark specifically for commercial interiors. Using environmentally sustainable systems and materials often saves money in the long run when the lifecycle costs of materials and building systems are factored in.

ConclusionAs the design of the workplace

comes to be viewed as an integrated product capable of supporting employee work patterns, adapting to change, and responding to its environment, it is taking on greater importance as a tool for increasing organisational effectiveness.

Tuning an office for this level of performance requires an understanding of how people and information flow through a contemporary work environment. It requires an ability to consider not just space planning but furniture design, materials selection, and technology. And it requires sensitivity to organisational culture. If done right, a workplace revitalisation yields tangible results, making a company’s real estate part of the solution by providing maximum value and bringing out the best in people. n

Since becoming a Design Partner at Skidmore, Owings & Merrill LLP in 1995, Stephen Apking has been instrumental in broadening SOM’s multidisciplinary design practice with an emphasis on innovation in interior architecture. Through his global portfolio of award-winning office designs, Stephen has created and continues to advance the concept of the Performative Workplace.


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Green at its best: Suzlon one earth By Christopher Charles Benninger

S u s t a i n a b i l i t yCase Study

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Suzlon Energy Limited, a world-leading wind energy company based in Pune, India, together with this

architect, pledged to create the greenest office in India. Living the motto of the company, ‘powering a greener tomorrow’, the architect relied exclusively on non-toxic and recycled materials. A million S.F. of ground plus two levels in a 10.4 acre urban setting achieved a LEED Platinum and TERI GRIHA 5 Star certification with 8 per cent of its annual energy generated onsite through photovoltaic panels and windmills with a total incremental cost of about 11 per cent. There are no other LEED-certified buildings with this level of certification and onsite renewable energy which have achieved this kind of cost efficiency. 154 KW of electricity is produced onsite (80 per cent wind and 20 per cent photovoltaic). All other energy (4 MW) is produced in the client’s windmill farms. 92 per cent of the energy being consumed by the project is sustainable energy, making this a Zero Energy Project.

Architecture has played a major role in the iconisation of the world’s leading companies. I M Pei’s Bank of China in Hong Kong, and Norman Foster’s design for the insurance giant Swiss Re in London, have elevated these companies through spectacular architecture. It has become a need for global corporations to have sensitively designed buildings which reflect their values, concern for the environment and image for the new age. Indian corporations are imitating the west in the design of their buildings which are essentially

designed with glass and steel structures for the long cold winters. But there is a need for designing buildings in India with sensitivity towards climate that is both energy efficient and draws on vernacular solutions. While building a Green Building complex was a matter of civic responsibility, the objective of the design was to make a Great Place to Work. This took the shape of a Land Scraper, opposing the idea of a Skyscraper. It is a counter blast to the glass box.

Drawing inspiration Suzlon One Earth derives

its inspiration from large Indian historical campuses such as Fatehpur Sikri and the Meenakshi Temple complex in Madurai. Architecture should borrow elements of critical rationalism with overhangs, louvres, pergolas, courtyards, and water and natural light permeation.

Drawing clues from vernacular architecture, while respecting nature and culture, this sustainable and efficient design provides 75 per cent of the work stations with daylight and external views, allowing inhabitants to enjoy seasons, weather conditions and to connect with the time of the day.

The needs of the client were growing and changing almost from week to week during the design process. There was a need to create a transformational system which by its very nature was less specific and more general. This led to the creation of a simple arrangement of Server Spaces and Served Spaces. The Served Spaces cover the lion’s share of the campus where people

work. These are in fact flexible and adaptive cold shells that can accommodate modular walls and furniture systems. These are served by more rigid cores that house wet areas, utility shafts, ducts, fire stairs, elevators, and entry and reception areas that will not change over time. Modules are like the silo fire stairs, the benchmark glass cylinders and the 8.4 metre by 8.4 metre modules which can be used like a Lego Set and moved about in one’s mind to create internal and external spaces.

Design processThe design process started with

the premise of creating a central gathering space, or Brahmasthan, with the sky as its ceiling. It was conceived as a ‘secret internal garden’ that gifts an exclusive and unique feel to the campus. There is visual access to the large central gardens from everywhere. There is a sense of connection between the various kinds of spaces right from the underground entries to see the sunlight that descends there from the Sky Courts and the Glass Cylinders and the vegetation that flows from these elements, up through the cylinders into the main circulation nodes of the building. They act as visual connectors between all floors and allow aeration of the basement parking area.

The Deepa Stambh is set in the centre of the Suzlon reflecting pool. The pool rests at the basement level, wherein all of the cafeteria and the dining room open on to the water. In the background these see a cascade of water falls, flying down three levels of tiers, with traditional

step-like objects giving rhythm to the backdrop. A long water basin feeds the water falls through a pumping system. The lineal basin links the Brahmasthan to a fountain toward the east. These auspicious components protect the campus from unwanted influences and create a central focus and landmark. They bring very Indian features within a very global, high-tech ambience. The large water body in the central court helps in improving the air quality and for evaporative cooling. All the external landscape areas are brought into the indoors along the perimeter of the building bringing fresh air, nature and natural light into the work areas so as improve the productivity of occupants. This central garden plaza encourages communication, interaction and innovation among the 2,300 colleagues and provides a stunning aesthetic presentation for visitors.

In the Wind Lounge there is a very traditional Indian Chowk here, with kund-like steps leading into a water pool shaded by photovoltaic panels allowing filtered light in, as if through an ancient jaali.

Aluminum louvres act as a protective skin allowing daylight and cross-ventilation. All areas have operable fenestration allowing natural air and ventilation when possible. These strategies resulted in lower, thinner and longer building shapes that increase the ratio of fenestration to volume, enhancing natural light and ventilation in hot and dry climatic conditions.

The building employs a complex building management system. The lighting of individual offices is

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The enigma of light through the façade creating visual delight

Solar Photovoltaic panels in the learning centre courtyard atriumcontrolled by combined daylight and occupancy sensors. 65 per cent of the energy is saved by the use of LED outdoor light systems in comparison to conventional schemes. There’s a 30 per cent to 40 per cent reduction in operating costs due to energy savings, and 30 per cent due to water savings. n

Prof Christopher Benninger was born in the United States in 1942, and has lived and worked in India for the past 40 years. He studied City Planning at MIT and Architecture at Harvard University. As an institution builder he founded the School of Urban Planning at CEPT, Ahmedabad, India, in 1971 with Balkrishna Doshi, and thereafter founded the Centre for Development Studies and Activities in 1976 at Pune, India.

Christopher Charles Benninger Architects is based in Pune, India.

S u s t a i n a b i l i t yCase Study