As businesses are facing a new disruptive landscape, companies are recognising the need to revise their real estate requirements, says Lee Elliott, Head of Commercial Research, Knight Frank. In an interview to BusinessLine, he explains the space optimisation strategies of companies in the changing landscape. Edited excerpts:
What are the global trends in space optimisation strategies of companies’ real estate needs?
Real estate is witnessing an interesting phase currently. Corporates are much more strategic in the use of real estate as compared to previous times. Real estate now is perceived as a device to enable business strategy and hire right talent. There is much more care, consideration and time spent on making correct decisions. It’s a well-known fact that only 40 per cent of corporate real estate portfolios get fully utilized during any one moment in time.
However, considering the environment that has low growth as well the financial crisis scenario, it is not a palatable position for an organization to be in. Hence, that 40 per cent of utilization is challenged and the imminent result is densification of occupancy. Historically, it’s not a very positive concept, as it meant cramming more people into less space. However, reality is little different and what we are seeing is emergence of ABW (activity based working) where we have seen the tradition of binary distinction between urban plan and cellular space being challenged and broken down.
What is the level of demand and supply position globally?
There is a lot of similarity between global markets and geographical locations in terms of real estate trends. Since financial crisis of 2008, we have witnessed a steady improvement of demand. Occupational markets have recovered and have been witnessing enhanced demand; however, demand is led by disruption due to need for expansion or in some cases need for consolidation. The disruptive forces of work in a quick order are in a war for talented individuals around the globe.
Secondly, high levels of business restructuring in response to financial crisis and the subsequent low growth trajectory of the economy that we are in is a disruptive force that we cannot do away with. Thirdly, influence of information technology (IT) which is fundamentally shaping and changing the shape of businesses and individuals, the way they work is another factor of disruption. Demand is improved but somewhat at contained level as we do not have traditional expansion drives in the market. Supply at the same period is limited due to a crisis in development of finance.
Is there a space crunch? How severe is the space crunch globally?
It is pretty severe by historic standards. Grade A supply is at an all-time low and occupiers are really seeking Grade A supply for their business growth and to attract talent. It is so severe that occupiers resort to pre-committed deals. It is a natural reaction due to the shortage of space and occupiers are more strategic and hence more comfortable to take up pre-committed space for 2- 3 years. Developers also get the security of steady income and hence the trend is really catching up.
What is the status of demand and supply position in India and where does India stand in the space crunch scenario?
The scenario in India is quite similar to the global setting as there is dearth of quality office space supply and demand for office space is growing robustly since 2- 3 years now. After the global financial crisis in 2008, most of the developers invested in developing residential projects instead of office buildings. However, office segment demand picked up and businesses began to grow but supply did not grow in sync. As a result, there is abundance of residential projects while there is scarcity of office space today.
How are companies addressing it globally? What about Indian companies?
As witnessed in the global scenario, in India too lot of pre-commitment deals are happening especially because of the limited supply scenario, and also in order to secure good quality office space.
Bengaluru is the top space absorption market in India. What is the space optimisation scene here?
Bengaluru is witnessing the same trend as faced by different markets globally. Most occupiers are resorting to pre-commitment of space in order to possess quality office space as per their requirements. A notable point here is due to crunch or limited supply, most of the cities have seen rent acceleration. However, in the visibility of new supply as available with occupiers, exponential growth in rents is controlled.
For office space optimisation, an alternative model for space provision that is becoming popular in Bengaluru and other tech driven cities is the concept of co-working. Many companies are opting for this model in Bengaluru and other technology driven cities in India.
(This article was published on October 20, 2016)
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