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Is Indian real estate heading

towards a tectonic shift?


July 2015

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

Contents

1
2
3
4

Introduction
4Ps of real estate
the pillars of transition
Players

Process
Product
Places

Office real estate sector

Migration to peripheral business districts has accelerated


Real estate will see greater participation of Private Equity
and institutional investors
Occupier profile undergoes a transition

Retail real estate sector


Frequent churn a new norm in retail malls

Malls witness a divide: successful versus unsuccessful


New breed of retailers to drive demand for quality retail supply

5
6
7
8

Residential real estate sector


Apartment sizes are falling in order to suit affordability of buyers
Branded residences have slowly caught the attention of richer Indians; trend appears lasting
Definition of basic amenities has expanded even for mid-segment to affordable housing
New concepts in residential: senior Living, service apartments and studio apartments

Industrial real estate sector


Traditional godowns making way for modern warehousing

Changing business environment to reshuffle location criteria for warehouses

Current innovations lay foundation for future transitions


New breed of developers

Rising prominence of CRE team within office occupiers


Consistent rise in real estate market transparency appears likely
A green building movement is underway in India

Conclusion

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

Introduction

An industry that is relatively new compared to the banking, finance,


manufacturing, consumer goods and others, the Indian real estate
sector has not seen many business cycles in the pre liberalisation era.
However, post the economic liberalisation of 1991 during the IT boom
in the last decade (2000s), the sector has witnessed two business
cycles. The latest cycle (2005-10) ended up with a lot of learnings for
the stakeholders, and has made the sector relatively more mature and
transparent. In that sense, the last 10 years has been quite dynamic,
as each of the fundamental 4Ps of real estate Players, Processes,
Product and Places witnessed plethora of changes.
The core sectors of Office, Retail, Residential and Industrial have
independently witnessed changes of their own. Office markets have
witnessed a transition in terms of moving out of the central business
districts (CBDs) to secondary business districts (SBDs) and peripheral
business districts (PBDs) in search for value, while corporate
occupiers' profile have become more diverse or less concentrated
within few industries. Changing consumer preferences and entry of
more international retailers have made the retail sector complex and
dynamic. Consequently, there is now a divide between malls that
could adapt to the new dynamism and those that cannot. On the other
hand, residential sector is finding its own ways of evolving through
experimentation with concepts such as compact homes, branded
homes, senior living, and serviced and studio apartments.
The on-going transition within the real estate sector offers us a
foretaste of what the near future beholds. We foresee sweeping
changes in the way real estate developers conduct their business,
particularly looking at the innovative practices and agility of certain new
breed of developers. Corporate real estate teams will have to become
more adept and skilful in order to make the most of the upcoming
transition, and bring to light a rewarding portfolio for their companies.
For homebuyers, the recent changes and future transition will bring
about a more transparent market that is not just sensitive to their
needs, but also sensitive towards the ecology at large.

The last 10 years has been quite


dynamic, as each of the fundamental
4Ps of real estate Players, Processes,
Product and Places witnessed
plethora of changes.

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

4Ps of real estate the


pillars of transition

2.1 Players
The real estate industry has been a highly localised industry in India
with each city being dominated by a select few developers. However,
in the post-global financial crisis (GFC) era, several developers started
to expand their footprint to newer geographies. For example K
Raheja Corporation, dominant in Mumbai, forayed into the Hyderabad
IT office segment through its Mindspace park in 2004, Godrej
Properties dominant in Mumbai, forayed into Ahmedabad through its
Garden City project in 2013 and entered the Pune market by way of its
Horizon project at Undri in 2012. A recent entrant in the Indian realty
space and primarily on the retail segment is the Xander group, which
is establishing a pan-India portfolio of properties spanning diverse
asset types starting with its VR Mall at Surat, (completed in 2013).
It is highly likely that the trend of large and well capitalized developers

building a pan-India portfolio of real estate assets may sustain and


strengthen over the next decade as the market matures and weaker
players get weeded out for lack of capital, corporatization, and technical
prowess. Eventually, the sector would witness a period of consolidation
wherein large, well-capitalized developers would gain market share
by either purchasing assets or acquiring smaller players. Developers
holding excessively large levels of debt on their balance sheets and
struggling to service it would be the prime takeover candidates while
professionally managed players with access to institutional funding
would emerge as acquirers. The introduction of real estate investment
trusts (REITs) would catalyse the transition as private equity (PE) funds
would be able to make exits from their current projects freeing up capital
for more judicious deployment in future years.

Examples of developers foraying into new geographies


Developer Name

Dominant
City

Expansion
City

Project Name

Asset
Type

Godrej Properties

Mumbai

Kolkata

Waterside

Office

Godrej Properties

Mumbai

Gurgaon

Godrej Summit

Residential

Tata Housing

Mumbai

Bangalore

Casacades

Residential

Tata Housing

Mumbai

Gurgaon

Louvre

Residential

DLF

Delhi
NCR

Bangalore

Westend Heights

Residential

DLF

Delhi
NCR

Chennai

Commanders court

Residential

K Raheja Corp

Mumbai

Hyderabad

Inorbit Mall

Retail

K Raheja Corp

Mumbai

Bangalore

Vivarea

Residential

Source: JLL-REIS

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

We are beginning to witness the


trend of outsourcing of AEIC
(Architecture, Engineering, Interior
and Contractor) practices to globally
renowned agencies in an effort to
make Indian cities standout

2.2 ProcessES

Property transactions becoming increasingly legitimate

Ongoing changes in how real estate stakeholders are carrying out


their business in India reveal a change in market perception

While the property market slowdown in India since 2011 has hurt many,
one positive thing that has happened is the consistent fall in cash
component (source of black money) in property purchases. Over the
last five years, property prices have almost stagnated against inflation
across major real estate markets. As a result, majority buyers who are
currently active in the market are salaried people who can support
a loan but cannot afford cash payments. Today, as much as 80% of
buyers in top cities such as Mumbai, Delhi, Bangalore, Chennai, Pune,
Hyderabad and Kolkata are salaried employees. On the contrary,
businessmen and speculative investors were dominating the market
prior to the slowdown when real estate boom was at pinnacle. Today,
almost all newly developed residential properties can be bought with
100% white money. Many resale properties too are available without
the cash component.
Governments recent budgetary measures to
encourage or incentivise electronic payment
for large transactions such as property
purchase, and simultaneously raise
punitive action against illegal transaction,
will further help reduce cash dealings.

Growing acceptance of international real estate


consultants
As against the 1990s, when multinationals that entered India largely
adopted the Indian standards in real estate, the IT-era growth post
2000 witnessed offshore companies demanding quality IT space.
Besides, Indias growing prowess in the world of services, trade and
business resulted in a wider participation of multinational companies,
who shifted their base to India and created a natural expectation
for superior quality of construction, architecture and design. Local
developers left no stone unturned to ensure best practices across the
globe were gradually adopted.
More recently, we are beginning to witness the trend of outsourcing
of AEIC (Architecture, Engineering, Interior and Contractor) practices
to globally renowned agencies in an effort to make Indian cities
stand-out and reflect their recently acquired prowess. In the last five
years, these consultants have become household names in their
respective fields within the real estate sector. Their designs have
been inspiring property buyers because they reflect styles that are
truly global. These consultants manage to influence more developers
into partnering with them.
Following is a list of internationally reputed consultants that currently
operate in India
Architecture

Interiors

Landscape

HOK

Kelly Hoppen

Allan Wyatt

Woha Singapore

Yoo

Belt Collin

Callison

Jade Jagger

Design Concepts

Foster & Partners

Casa /
Armani

Sitectonics

HB Design

Philippe
Starck

Studio Steed

Source: JLL-REIS

Real estate records going


online
India is today at the forefront of
adopting technological innovations into
practice across a wide variety of businesses
and public administration mechanism.
Initiatives such as e-governance and
Digital India are bringing about sweeping changes
in the public administration operates
and records are maintained. In the last 5-7 years,
few government websites have taken the lead in making
critical land and registration records available online, thereby
giving a new boost to market transparency.

Examples of public portals that are rich with real estate information

National land records

http://www.archive.india.gov.in

Central government property records


http://estates.nic.in

Property registration records of Maharashtra


http://igrmaharashtra.gov.in

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2.3 ProDUCTS

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2.4 PLACES

There is a significant change in the way construction quality and


techniques have evolved over the years. By simple observation,
projects completed before 2000 mostly had older design and no
amenities. The buildings had no element of sustainability energy
efficiency, water harvesting system, security systems, advance safety
norms etc. Existing multinationals, too, had no option but to occupy
such buildings given the limitation of technological capability to
construct modern buildings.

Post the beginning of IT boom in India around the year 2000, large IT
companies and other MNCs who wanted to enter India in a big way,
expressed their desire to occupy space in modern offices. These
factors led to Indian developers delivering superior construction quality
that fulfils the requirement of MNCs & IT companies. Developers
across India implemented various advanced construction techniques
and innovative designs to improve the quality of projects through which
they have attracted more IT & MNC occupiers into their projects.

Differences in amenities of old-style buildings and modern buildings

PRE 2000

POST 2000

More use of brick in construction

More use of steel & glass in construction

Smaller floor plates

Larger floor plates

Conventional construction techniques

Advanced construction techniques

No Green Building

Rising proportion of LEED certified buildings

Absence of recreational facilities

Importance for recreational facilities

Insufficient parking facilities

Ample car parking facilities

Basic security system

Advanced security systems

Basic firefighting system

Advanced fire detection and firefighting equipment

Old design structures

Modern design structures

No air-conditioning

Centralised air-conditioning system

Nariman Bhavan - Nariman Point, Mumbai


Mittal Court - Nariman Point, Mumbai
HT House - Connaught Place, Delhi NCR
DLF Corporate Park Gurgaon, Delhi NCR
The Senate - Ulsoor Road, Bangalore
Khanija Bhavan - Race Course Road, Bangalore
IT Park Kharadi, Pune

100% power backup

Examples

No power backup

Peninsula Business Park - Lower Parel, Mumbai


Mindspace IT Park Malad, Mumbai
Signature Towers Gurgaon, Delhi NCR
One Horizon Centre Gurgaon, Delhi NCR
Tata Xylem Tech Park Whitefield, Bangalore
Embassy Manyata Tech - Hebbal ORR, Bangalore
Blueridge IT Park - Hinjewadi - Pune
Source: JLL Research

Property markets are evolving at every stage, starting from tier-I cities
since liberalisation days to tier-II cities post the IT-ITES boom in India
during the late 1990s. Driven by rapid pace of growth of the services
sector, office market strengthened in the tier-I cities, which were
predominantly occupied by sectors such as BFSI, Pharmaceuticals,
FMCG and Media. However, in the IT era post 2000, offshoring of
business received a major fillip after the global Y2K problem as well as
favourable IT policies of the Indian government. Because location was
less of a concern for the offshoring companies, they preferred to enter
tier-II cities Bangalore, Hyderabad, and Pune. These markets had
some inherent qualities such as good number of technical education
centres, low property prices / rentals, vast availability of space to
accommodate campus-style offices, and pleasant weather.
Today, cities such as Bangalore and Pune are dotted with presence
of large IT multinationals and the incremental space for new entrants
is getting limited. Additionally, developments witnessed over the last
decade or so have resulted in a steep rise in prime property prices
that may not be comforting to few existing IT companies planning to
expand operations. Simultaneously, there is a wave of infrastructure
improvements happening in tier-II and tier-III cities, which are fast
getting connected with todays major metros.
IT sector has dominated office space occupancy for almost a decade
and is now exploring new cities for expansion or creation of new
bases. The necessity to exert tight control on occupancy cost, to
maintain cost-competitiveness, prompt IT/ITES firms to scout for
alternate destinations that have an abundance of skilled manpower.
This is resulting into the emergence of new cities such as Chandigarh,
Visakhapatnam, Vijayawada, Mysore, Kochi, Coimbatore,Tiruchi,
Bhubaneswar, Ahmedabad & Gandhinagar, Jaipur as the new centres
of choice for setting up large scale IT office infrastructure.

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Office Real Estate


sector

From greater occupier diversity and migration to suburban areas to


increased participation of PE funds and institutions, the office segment
has witnessed significant transition over the last decade - a trend, we
expect, will gather pace in the years to come.

3.1 Migration to peripheral


business districts has
accelerated
The trend of companies migrating to offices in suburbs and peripheral
areas driven by a combination of cheaper rents and lesser commute
times for workforce has risen sharply over the last decade. IT/ITES
companies, which were largely location-independent due to their
offshore-onsite business model, are the trend-setters in this respect.
Other sectors have increasingly taken the cue in setting-up large office
spaces in secondary business districts (SBD) and peripheral business
districts (PBD).

Migration to suburbs and


peripheral areas driven by a
combination of cheaper rents
and lesser commute times for
workforce has risen sharply
over the last decade

Developers have responded to occupier demand by executing large


IT parks and office projects in SBD and PBD precincts. PBD has seen
the biggest jump in the share of office stock, rising from 28% in 2004 to
47% in 1H2015. The share of SBDs in office stock has remained stable
over the last several years at around 43% of the total office stock.
CBD, on the other hand, has witnessed a severe attrition of occupiers
and a decline in fresh supply of office space thats led to a significant
drop in its share of office stock from about 33% in 2004 to 10% in
1H2015.

Office stock by business


district by city 2004-1H2015

All figures in %
Note: Some percentage totals may not
add-up due to rounding off.
Source: JLL-REIS

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3.2 Real estate will


continue to see greater PE,
Institutional participation

Reasons behind the transition


The preference for SBDs
and PBDs has been largely
dependent on the development
of mass transit systems and
social infrastructure in these
locations. The availability of large
contiguous land parcels and a
high quality supply of buildings
have been the other major factors
that shaped this trend. Rental
difference the principal factor
driving the rush towards extended
suburbs has been significant.
As of 1H2015, average rental
values at PBD locations in the
country were about 45-60%
cheaper than CBD rentals.

Delhi NCR has witnessed the most spectacular emergence of alternate


business districts in Gurgaon and Noida, which draw workforce not
only from within local municipal limits but also from Delhi and other
areas of NCR.
The trend has been especially pronounced in case of Gurgaon,
which has seen a meteoric rise in almost all demographic and
economic indicators. Gurgaon has witnessed an unprecedented urban
transformation with its urban population having clocked the fastest
growth in the country over the last decade 17% compound annual
growth rate (CAGR) from 2001 to 2011. Gurgaon and Noida comprised
over 80% of the lease volumes in 2015 amongst the highest
proportion of lease volumes registered by peripheral destinations in
any city.
Mumbai has been an exception to the trend of office migration to PBD
due to lack of supporting infrastructure and connectivity. However, the
city witnessed a steady shift in office stock from prime CBD areas like
Nariman Point to SBD precincts such as Lower Parel and AndheriKurla road. An exodus of offices out of CBD was sparked by lack of
quality office stock and the complicated ownership structure.
The opening of Bandra-Worli Sea Link in 2009 enhanced connectivity

Office stock by business


district by cities 2005-1H2015

Real estate in India has seen rising participation by private equity (PE)
funds over the last decade. After the election of the new government
in 2014, PE deals gathered further momentum as investments
accelerated sharply in the first half of 2015. Global funds have made a
strong comeback investing in affordable housing developments, office
parks and mixed-use projects.

Rising share of private


equity lending to Indian real
estate

Reasons behind the rise of PE funds

Source: JLL-REIS

from the island city to the suburbs while the Santacruz-Chembur


Link Road (SCLR) and Mumbai metro projects improved east-west
connectivity. The lack of any significant mass-transit projects along the
crucial North-South corridor and to Navi Mumbai over the last decade
has restricted the development of office districts in PBD precincts.
This is evidenced by the modest increase in office stock in PBD as
compared to SBD.
Bangalore and Hyderabad have witnessed a significant shift in office
stock to PBD mainly due to dominance of IT/ITES sectors, which have
traditionally established large campuses at low-cost PBD precincts.
Significant progress on ring road projects linking the city peripheries
has improved connectivity in these cities.
Pune and Chennai have witnessed greater interest in the SBD
locations, which provide affordable alternatives for large occupiers
looking for Grade-A properties. SBD Old Mahabalipuram Road
(OMR) in Chennai and Hinjewadi in Pune emerged as front-running
destinations in the respective cities due to an abundance of large
Grade-A properties. Kolkata has seen a rising interest in PBD precincts
such as Rajarhat, which has witnessed a significant rise in office stock,
driven primarily by the IT/ITES sector.

The economic slowdown witnessed since 2012 in India made it difficult


for developers to tap the primary equity markets for funds. Banks,
the biggest lenders of the sector, were also under pressure during
this period due to increasing stressed assets on their balance sheets,
constraining their ability to finance newer projects. Making matters
worse, the economic slowdown dented the demand for new office
space due to many corporates putting expansion plans on hold.
The difficult situation of the office segment is now evidenced in
the elevated levels of vacancy. The spill-over of supply conceived
during the pre-GFC period combined with weak absorption has led to
persistently elevated vacancy levels of about 15-20% on an average
country-wide basis. Delhi-NCR, Kolkata, and Mumbai-MMR have
been particularly hard-hit by vacancy levels, which are higher than the
countrywide average.

Source: JLL Research

Office vacancy rates in


Indian cities 2005-1H2015

On the other hand, Pune, Bangalore, and Hyderabad have enjoyed


lower vacancy levels due to greater coordinated supply with precommitment by IT companies in these cities. Developers in Bangalore
usually commit to commercial buildings in consultation with occupiers,
thereby having a better understanding of future demand.
In Mumbai, however, developers typically gauge the market sentiment
and construct space on a speculative basis leading to higher vacancy
during economic down-cycles. The vacancy levels have been
significantly higher ranging about 40-60% in lower grade office spaces.

Source: JLL-REIS

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3.3 Occupier profile


undergoes a transition
The office sector has witnessed a gradual transition towards greater
occupier diversity after more than a decade of IT/ITES dominance.
Absorption of office space broadly mirrored the economic fortunes
of the occupier industries through the business cycles over the last
decade.
The GFC in 2008 saw a significant contraction in the share of IT/ITES
companies in total office space absorption in the country as these firms
reeled under the effects of widespread cuts in IT spends worldwide.
After a brief period of recovery during 2009-10, the share of IT/ITES
sector has continued to decline as the Indian technology sector itself is
transitioning from its traditional labour arbitrage model towards newer
technology platforms such as cloud computing and automation a
trend that cuts down on the requirement for human resources and,
consequently, office space. The share of IT/ITES sector in leasing
volumes has declined from 48% in 2005 to 32% at the end of 2Q 2015.
The lower absorption of office space by the IT/ITES sector would
be compensated to a large extent by new-age sectors such as
eCommerce. The blistering pace of growth of the eCommerce sector in
the country has resulted in massive office space absorption a trend
we expect to continue over the next decade as broadband connectivity
further penetrates to rural households.
Another sector that has undergone substantial erosion in space
absorption is the manufacturing sector, whose share in leasing
volumes has declined from 22.5% in 2005 to 10.8% in 2015. Domestic
manufacturing continues to be highly uncompetitive, saddled by
difficulties in land acquisition, environmental clearances and archaic
labour laws.
The Modi governments renewed thrust on manufacturing through its
flagship scheme Make in India, has received a positive response from
many MNCs. The government has put in place a defined agenda for
implementing structural reforms in labour laws and land acquisition
act, which are precursors to successful implementation of Make in
India. The renewed focus on the manufacturing sector would result
in associated addition of manpower and space that would result in a
sustained, multi-year increase in office absorption.
The traditionally defensive sectors such as telecom, healthcare and
bio-tech behaved resiliently in the aftermath of the GFC with little
impact on their hiring and office space absorption. Within this space,

the export-driven sectors of healthcare and bio-tech experienced


record sales and profit growth during 2012-13, a period which was
otherwise slow for the domestic economy. This led to strong hiring and
consequently, rise in share of leasing volumes by this occupier type
from 14% in 2005 to 37% in 2015. The share of these occupiers can
be expected to rise over the next decade as healthcare sectors are
increasingly expected to take the inorganic route to future growth.
The savings accruing from lower petroleum and other commodity
prices (of which India is a large net importer) would enable the
government to better fund big-ticket infra projects like Delhi-Mumbai
industrial corridor (DMIC), the smart cities mission and construction of
national highways, thereby boosting the construction and infrastructure
sectors and their share in office space absorption.
The share of the BFSI sector in leasing volumes has been relatively
stable through the last decade. After reaching a low-point of about 8%
in 2012, the share of BFSI reverted to its long term average of around
13% by 2015.

Sector-wise share of
leased area, 2005-1H2015

Retail Real Estate


sector

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The retail real estate sector has become one of the most dynamic
sectors in India as consumer preferences change at a rapid pace.
Frequency with which new brands enter the markets, older brands shift
base, and malls reorient themselves is breath-taking.

4.1 Frequent churn a new


norm in retail malls
Malls are seeing a lot of churn in recent years. So much so that it
appears to have become a new normal. During the mid-2000s, post
the boom in real estate and after the development of malls happened
across major real estate markets in India; business conglomerates
such as Reliance, Aditya Birla, Godrej, Future Group etc. emerged in
the business of retail and occupied large spaces in malls. Contract
period tenures were typically in the range of 18-20 years for anchor
tenants while smaller vanilla retailers enjoyed 9-10 years.
More recently, contract periods have been shortened to anywhere
between two and five years for vanilla retailers. As a consequence, in
a few good malls where business is roaring, the rate at which malls
churn brands have increased considerably. On an average, when
business is good, churn rates of around 15-18% have been recorded.
This is abnormally high considering that it used to be in the range of
4-8% in well-managed malls in the initial period.
A combination of factors is responsible for churn rates going up so
high:
Poorly performing retailers exit malls midway through their lease
contracts
eCommerce players establishing/ expanding their brick-and-mortar

Changing contract tenures across Indias malls


Anchor brands

Other brands

2002-2003

18-20 yrs

9-10 yrs

2010-2011

12-15 yrs

5-6 yrs

2014-2015

9-10 yrs

2-3 yrs

*Details pertain only to lifestyle brands

presence possibly on the back of big funding through foreign direct


investment (FDI) or private equity
Landlords (or developers) initiate churn to improve their portfolio of
tenants at some locations while at unviable locations, retailers are
driving the churn.
The good part of this churning, however, is that the market is realising
its true value. Leading malls enjoy the privilege of deciding which
brand to house and continuously monitor all stores that follow a
revenue-sharing model, over and above a minimal fixed rental. The
revenue-sharing model has been increasingly in use to ensure both
developers and retailers put in equal efforts to drive-in the muchneeded footfalls to the mall. Hence, non-performing brands are
being weeded-out within fairly short periods of time and others being
coaxed or forced to shift floors for better-performing brands to be
accommodated. Global as well as leading domestic brands either
prefer to lease space in premium malls or go for high street locations.
In a way, there is pressure on malls to partner with only highlyproductive brands, or risk succumbing to competition from other malls
in the vicinity. Good malls are currently in demand. An increasing
number of international brands want to enter India and lease space
in high-performing malls. For instance, all national and international
brands want to get launched from either a SelectCityWalk or DLF
Promenade in Delhi and High Street Phoenix, Oberoi, or Palladium
in Mumbai. At times, the churn is so necessary and rewarding that
mall developers have gone ahead and bought-out contracts of brands
in order to accommodate a more premium brand. Therefore, from a
mall managers perspective, locking-in tenants for 18-20 years will
grossly inhibit the malls capability to correct its model, as and when
necessary.

4.2 Malls witness a divide:


successful versus
unsuccessful
In the past few years, developers reduced supply of mall space in
India due to rising vacancy levels following the economic slowdown.
However, prior to that, developers had resorted to break-neck pace
of construction of malls in response to a spurt in organised retail
business. Irrespective of the design quality, mall management
practices and so-called best practices, developers continued to supply
retail space on the back of growing demand from existing and new
retailers. Few developers had, back then, realised the right ingredients
for constructing a successful mall. Post the slowdown in Indian
economy in 2010, realisation seeped in that quality is required for
enduring results.

In the near future, we expect more


malls to withdraw from the retail
realty business as a result of which,
the business of average and good
performing malls will improve.
Unlike commercial buildings, whose tenants are stable and share
common facilities, management of retail malls is complex. Apart from
catering to various brand categories, mall management also involves
planning the right tenant mix, space optimisation and zoning, and
constantly studying shopper behaviour. Malls need to collect feedback
from visitors to be relevant in all seasons. Otherwise, they will be out
of the competition. Some malls perform poorly as they are unable
to define the mall type, lack research on catchment and selection of
wrong partners. By turn of the current decade, it was evident that mall
management was not in the genes of every developer.
The haphazard manner of constructing malls without due-diligence left
quite a few malls sick. The overall vacancy rate today stands high at
~20% in retail malls across major Indian cities. On the contrary, malls
that run successfully have vacancies of not more than 10%, with a
selective few ones operating near full capacities. In recent years, we
have seen bad malls beginning to succumb to the business viability
stress and giving up hope. Consequently, these malls are either
converting into Grade-B office spaces or getting demolished to make
way for a new asset class in real estate.

19

Many experts believe that most of the poorly designed malls that are
shutting down or converting into Grade-B office spaces are those
constructed in the early years and have become old. This is at best
a misconception, because market examples suggests that many old
malls still find relevance in a market that rewards better design and
mall management.
In the near future, we expect more malls to withdraw from the
retail realty business as a result of which, the business of average
and good performing malls will improve. This is a much-needed
course correction, which will continue to happen for some time. At
JLL research, we estimate around 14 malls to withdraw from retail
operations, having a combined mall space of 3.5-4.5 million sq ft.

Robust supply of malls during mid


to late 2000s; Slump in retail real
estate supply in the current decade

Source: JLL-REIS

Rising number of mall closures or


conversions across major Indian cities
expected to rise in near future

Source: JLL-REIS

20

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

4.3 New breed of retailers


to drive demand for quality
retail supply

Online retailers in quest for a hybrid model

The presence of foreign retailers


is only going to rise in India,
given that many brands have yet
to enter India but have already
expressed their intention to start
operations here

Foreign retailers tap rising consumer appetite in India


The Indian retail real estate sector is currently witnessing rising
demand for space coming from foreign retailers. This segment of
retailers previously (in 2005) occupied not more than 15% of the total
retail space in organised malls, which increased to 18% as of 2010,
and they currently occupy close to 22% of space. Entry of big foreign
brands such as Marks & Spencer and Zara has led to a jostle for space
within the good performing malls. It is the entry of these players that
has resulted in a divide between successful and unsuccessful malls, as
they heavily favour the former even at a higher cost.

Foreign retailers expanding reach


within leading Indian cities
(Store count in nos.)

The presence of foreign retailers is only going to rise in India,


given that many brands have already expressed their intention
to start operations here. The following table enlists the names of
foreign brands that have recently forayed into the Indian market
and have started occupying space in malls across the leading
seven cities

Latest entrant - foreign


retailers in India (2013-2015)
Brands

Source: JLL Research

21

First store
opening (year)

Existing Store
count (nos.)

ASICS shoes

2015

G-Star Raw

2015

GAP

2015

H&M

2015

Uniqlo

2015

Burger King

2014

20

Harrys Bar

2013

Pizza Express

2013

Kidzania

2013

Source: JLL Research

Increasingly, online retailers are beginning to foray into offline/physical store stores format of retailing. While this may be surprising for many,
it is a way for these brands to differentiate themselves amongst the clutter of wannabe online brands. Lenskart, a well-known Indian eyewear
brand that started online, has lately opened up stores in retail malls to directly connect with customers. Another brand called Freecultr, which is
a fashion apparel brand created online, has been swiftly moving onto the offline space in order to give their customers a chance to touch and
feel their merchandise. The brand is using its offline space to better understand the needs of their customers by collecting feedback, providing
alternate payment options, using the store as a pick-up point, etc. Interestingly, Freecultr has a question posted on their website asking patrons to
vote for a preferable city for their next installation, indicating that the company is planning to roll out more stores.
According to market sources, in 2014, over 70% of traffic on eCommerce websites came from the top-10 cities of India. This means that a vast
majority of transactions, particularly in cities within tier-II and beyond, happens in physical stores. The Indian Railway Catering and Tourism
Corporations (IRCTC) growth in rural India, through ticketing kiosks is a proof that rural India is offline savvy. For online brands to exploit the
rising spending power that exists in Indias rural market, it is important to make their presence felt in such places. Paytm, an online payment
solutions company, has already moved offline with over 50,000 kiosks for loading its e-wallet. By being offline, the company has built trust with
customers who would otherwise feel lost in the already significant online presence of other brands.
So strong is the urge to move offline globally that for the first time ever, Amazon US has opened a physical store in the US in early 2015, and
it plans to open more such stores by mid-2015. The biggest nightmare for every online seller is to deal with a shopping cart abandonment rate
of 70-80%. The sweet spot is to be in a middle zone where online sellers connect with the actual customers and also promote their products in
multiple avenues.

22

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

Residential real estate

Just like retail, residential real estate sector too is getting influenced
by the rapidly changing consumer preferences. Developers operating
in the residential space are ensuring they leave nothing to chance and
have been toying with many ideas to keep the customer engaged.
In the process, recent years have seen few transitions falling
apartment sizes, more lifestyle amenities, entry of branded apartments,
and introduction of new concepts such as senior living, serviced
apartments etc. These transitions have caught the fancy of Indian
homebuyers and they are likely to become a trend that will sustain the
test of time.

5.1 Apartment Sizes are


being decreased to suit
affordability of buyers
Builders are exploring innovative ways to make residential housing
across major cities more appealing to potential buyers at a time when it
is increasingly becoming difficult to sell expensive apartments. Builders
around the country are emulating the famous sachet marketing
strategy adopted by FMCG companies in the late 1990s.
Unable to sell expensive homes in a sluggish market, builders across
India are making smaller apartments without lowering the price per
square feet and compromising on the quality of product. In the last five
years, we have seen average apartment sizes falling across all major
cities of India. The following chart shows the varying degree of fall in
apartment sizes:

23

Mumbai Metropolitan Region (MMR) witnessed the maximum fall in


apartment sizes on annualised basis, along with Bangalore, Chennai
and Kolkata. Other cities also witnessed varying degree of fall in
median apartment sizes. The dynamics of apartment sizes have a tale
to tell that developers are paying conscious attention to consumers
requirements.
The fall in average apartment sizes across all top seven cities is a
clear indication that developers intend to make houses affordable
for buyers by reducing average apartment size instead of reducing
the capital values. While property prices are not purely a product of
developers discretion, the decision to alter apartment sizes as per the
needs and spending power of buyers is definitely within their ambit.
It is relevant to note that buyers preference is changing with time.
Several urban buyers are increasingly looking for new homes near
their office locations which could be small in size. They prefer a house
that is sufficient enough for his family requirements. This does not
mean that they are compromising on their lifestyle, they prefer a small
compact home equipped with all basic amenities.
Buyers are increasingly opting for homes that are closer to work-places
in order to reduce commute times. As these locations are expensive
compared to the suburbs, buyers may be able to afford smaller units,
which is more than acceptable. To enjoy the luxury of bigger homes
with good amenities, they prefer to buy homes in peripheral areas of
the cities, from where the concept of second homes is emerging at
outskirts of the cities.

Decreasing
apartment sizes
across Indian cities

Source: JLL-REIS

24

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

5.2 Branded residences have


slowly caught the attention
of richer Indians; trend
appears lasting
The increase in Indias economic prosperity has increased the number
of super-rich people in the country, a number that has grown by
more than 200% in the past ten years, and now accounts for 3% of
the worlds multi-millionaires [1]. As a result, luxury consumerism has
continued to increase. Very often, exclusivity is expressed through
luxury spending, which is shown through the wearing of premium
apparel, fine dining at expensive restaurants, buying of expensive cars
and also owning a luxurious home.
Currently, as consumers seek fashionable amenities in their
residences, branded homes are quickly gaining prominence in India.
Typically, these are luxurious apartments combined with hospitality
services provided by the likes of Hyatt, Four Seasons, Le Meridien and
JW Marriott, renowned globally for their superior hospitality services.
Some other apartments are joint-ventures with well-known fashion

City

Year

Mumbai

2011

Delhi NCR

2012

Pune

2010

Bangalore

2013

5.3 Definition of basic


amenities has expanded even
for mid-segment housing
Source: JLL-REIS

houses such as Armani and Swarovski, which lend their names while
designing the interiors.
From the above table, it can be seen that Indian developers have
started to tie-up with international brand names from early 2010 and
the trend of partnership with such brand names is increasing by the
year. Typically, projects in this category, to maintain exclusivity, resort
to less number of units. Also, developers prefer to choose prime
residential locations, preferably in tier-I cities. Also, such projects have
a tendency to command 25-30% higher prices than the average for the
sub-market, depending upon the branding and facilities.
The table below shows the year in which first branded projects were
launched in different cities.

Indian developers and their international


brand partners
Indian Developer International Brand Name

Location

Lodha Group

Armani / Casa, Jade Jagger, Philippe Starck,


Donald Trump, Kelly Hoppen

Mumbai

A & O Realty

F.TV

Mumbai

Suntech Realty
Homestead

Disney
Michael Schumacher, Maria Sharapova

Mumbai
Delhi NCR

Brys
Supertech
Prestige Group
Equinox Realty

Tonino Lamborghini CASA


Disney, JW Marriott, Armani, Swarovski
Disney
Jade Jagger

Delhi NCR
Delhi NCR
Bangalore
Bangalore

Bramha Corp

F.TV

Pune

Panchshil

Donald Trump, Kelly Hoppen, Philippe Starck

Pune

City Corp

Swarovski

Pune

Status and demonstration of success are the


decisive factors for the rich, especially the
nouveau riche, when buying these properties,
for investment-driven purchases are very few.
Luxury space with commensurate amenities
in top locations and targeted at the right class
of people ensures that demand in this niche
segment market is met with the right product.
More and more developers are now working on
this segment and we should see more launches
in the next few months. While the top developers
are roping in international designers to build
luxury residences in Tier I cities, lesser known
developers are employing well-known domestic
designers to do the same in Tier II cities.

Source: JLL-REIS

[1] Wealth Index by New World Wealth, June 2014 has ranked India eighth and home to 14,800 multi-millionaires (an individual with net assets of at least USD 10 million), below countries such as the US,
China, Germany and the UK, but above Singapore and Canada.

On the back of changing demographics (a population that is becoming


younger) and rising income, Indians have expressed their desire to
alter their lifestyles as we have witnessed over the last few years. Be
it shopping for premium brands, demanding quality office spaces, and
preference for quality amenities at residences, real estate sector has
been witness to this stellar transition in consumer preference through
these years.
Earlier, apartments with amenities such as swimming pool,
gymnasium, club house, open green lawns, jogging tracks, etc. were
limited to high-end apartments only. However, lately we have observed
that consumers of mid and upper-mid category homes have also
shown strong preference for such amenities in a bid to improve their
quality of life. This is despite having to pay slightly more for such
amenities. Realising the demand for such apartments, developers
have offered projects that meet both ends affordability for the city
homebuyers as well as quality of life experience.

25

26

Following are examples of mid & upper-mid segment projects with lifestyle amenities
Clubhouses, gymnasium, swimming / toddlers pool, luxurious spa / steam /
massage rooms / jacuzzi, multi-functional lounge, Indoor games / yoga room,
squash / tennis / half-basketball court, mini-theatre / amphitheatre, landscaped
garden / childrens play area

Mumbai

90 - 95

33

Lodha Splendora

Thane

95 - 100

26 Landscaped garden, clubhouse, swimming pool, sport courts, football field,

Indiabulls Greens

Navi
Mumbai

95 - 100

Godrej Summit

Gurgaon

95 - 100

Noida

Prestige Tranquility

Whitefield

Tata Housing New


Haven

Tumkur
Road

PRA Realty Lake


District

Pune

Kolte Patil Life


Republic

Hinjewadi

Akshaya Homes
Today

OMR

95 - 100

95 - 100

65 - 70

cricket pitch, jogging track, auditorium, amphitheatre, caf, party hall, library

23
No. of Quarter sinch Project Launch

3C Lotus Boulevard

% Units Sold

Kalpataru Aura

CITY

PROJECT NAME

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

85 - 90

85 - 90

60 - 65

Club-house, swimming and toddlers pool, gymnasium, health club with steam
/sauna room, jacuzzi, badminton court, indoor games, landscaped pathways
around jogging circuits, cycling tracks and childrens play area
Multi-purpose hall, fitness centre, amphitheatre, meditation / yoga arena,

14 skating rink, swimming pool, indoor / outdoor games, kids play area

Swimming pool, amphitheatre, party lawn, jogging track, indoor / outdoor

24 games, cricket academy, club house, gymnasium

16 Gymnasium, party hall, indoor / outdoor games, swimming pool, kids play
area, yoga terrace, health club, amphitheatre, jogging Track

Childrens play area, indor / outdoor games, skating rink, green landscaped
area, walking pathways, swimming pool, gymnasium, multipurpose hall

19 Large central park with botanical garden, clubhouse with swimming pool,
gymnasium, retail mall, hospital, jogging track, cafeteria

14

Clubhouse, sports facility, kids play area, swimming pool, gymnasium,


landscape garden / park,meditation center, multipurpose hall
Clubhouse, swimming pool, gymnasium, aerobics zone, indoor / outdoor

10 games, mini theatre, party lawns, jogging track, childrens play area

Source: JLL-REIS

As a result, the amenities offered by residential complexes, both on a


unit and project level, now represent one of the pillars of success for
any residential project the other three being location, construction
quality and pricing. This holds true for all segments of housing,
from mid-segment to upper-mid and high-end apartments. The only
exception here would .be housing for low income group (LIG) and
affordable homes where price overrides all other requirements or
criteria.
Definition of basic amenities has evolved to include all those facilities,
which are essentially non-luxurious. In the foreseeable future, mid

and upper-mid segments will continue to witness increasing allocation


of space for such lifestyle amenities, now that the trend has set in.
However, whether this trend will percolate further into affordable
housing category as well is debatable. While it is a no-brainer that
incomes are rising faster and people occupying affordable homes
in future would also prefer to have few of those basic amenities.
However, given that pricing becomes an overriding factor, many
affordable projects will have to depend on external facilities such as
private sports complexes, private gymnasiums, etc. The phenomenon
may be largely restricted to mid-segment housing only.

27

5.4 Emerging concepts: Senior


living, serviced apartments,
studio apartments
1. Senior Living:
Senior living is a new category of residential real estate that is
emerging in India. Currently, there are approximately 30-35 senior
living projects at various stages of construction in the country. Since
the concept is new, its contribution relative to the global senior
living sector is minimal. As opposed to that, senior living homes
accommodate 10% of the senior citizens in the United States and 4%
in Australia. There is a huge demand-supply gap within the sector,
which suggests the growth potential is immense.
Senior living concept took hold in India in the early 2000s, but the
sector started gaining any kind of serious momentum only after 2010.
Also, growth in this sector has been happening in pockets rather than
holistically. Most of the countrys senior living projects have cropped
up in the western and southern regions. This is because these regions
have:
Greater prevalence of nuclear families
Higher literacy levels
A more pronounced desire among young professionals to migrate to
other countries
Higher purchasing power, resulting in reduced dependency of seniors
on family members

Having witnessed higher acceptance rate for senior living projects in


the western and southern cities of India, developers in the northern
and eastern cities of India are also jumping onto the bandwagon.
Following are some examples of Senior Living projects across India:

Project Name

Developer Name

Year of
Launch

Location

Ashiana Utsav

Ashiana Housing

2011

Pune

Athashri

Paranjape Schemes
Construction Ltd

2010

Pune

Clover Renaissance Clover Builders

2014

Pune

Ashiana Nirmay

Ashiana Housing

2014

Bhiwadi

The Nest

Aakriti Group

2014

Bhopal

Primus Eden

Mantri Primus
Lifespaces Pvt. Ltd

2014

Bangalore

Riva

Tata Housing

2013

Bangalore

Antara

Antara Senior Living


Limited

2013

Dehradun

2nd Innings

Antara Senior Living


Limited

2013

Surat

Ashiana Shubham

Ashiana Housing

2015

Chennai

Source: JLL-REIS

28

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

29

2. Serviced Apartments

3. Studio Apartments

A growing number of expat professionals are looking to oversee


business operations in India. And this is exactly the fraternity that is
pushing demand for serviced apartments in India.

Technically, studio apartments comprise of single large rooms that


accomodate bedroom, living and dining areas, with compact kitchens
and bathrooms attached. When they first made their appearance
in the Indian residential landscape, studio apartments found favour
largely with bachelors and DINK (Double-Income No Kids) families who
spend most of their time at work. Nearly 80% of the overall demand
for studio apartments in Mumbai, Delhi-NCR, Bangalore, Pune and
Chennai are driven by software professionals and recently relocated
manufacturing sector executives. Such professionals have generally
spent over a year stationed in a metro and find that they prefer to pay
equated monthly installments (EMIs) on affordable homes that require
minimal maintenance rather than pay high rents for flats and serviced
apartments.

The concept: A serviced apartment is often a fully-furnished


accommodation, which is available for short-term or long-term stays.
These apartments come with basic amenities for daily use, which
include a kitchen with cooking range, kettle, microwave, a washing
machine etc. If you dont want to cook or do the routine chores, you
can even sign up for a complimentary breakfast, laundry etc.
The concept of serviced apartments works very well in the metros
and larger tier-II cities, where starred hotels are notoriously
overpriced. Often, the executive traffic of many MNCs and domestic
companies is too erratic to justify a standalone company guesthouse.
The best locations for serviced apartments are in and around the
citys CBD and SBD areas. Currently, Indias highest demand and
rate of development in serviced apartments is in Bangalore, Pune,
Mumbai, Delhi, Chennai and Hyderabad.
Examples of few Serviced Apartment Projects in India

Project Name

Developer Name

Year of
Launch

City

Lalco Residency

Lalco Group

2011

Mumbai

Oberoi Oasis

Oberoi Realty

2014

Mumbai

Oh My God

Baya Weaver

2014

Delhi NCR

Four Seasons Private


Residences

3C Company

2013

Delhi NCR

Ascott The Residence

Ireo

2013

Delhi NCR

Vice Royale

Ajnara Group

2012

Delhi NCR

Homestead Service
Residences

Brigade Group

2008

Bangalore

Triangle Skypark
Apartment

Anish Projcts

2013

Bangalore

Oakwood Premier

Panchshil Realty

2009

Pune

Seasons

Naiknavare
Developers

2009

Pune

Source: JLL Research

Opting for a serviced apartment makes


sense when the comparative cost of
a quality hotel room for an extended
stay is prohibitive. It is a good option
for international executives who shuttle
between cities and require cost-effective
short/medium/long-stay options, and for
domestic business travellers shuttling
internally between regional offices.
The next wave of development within
the hospitality sector would be in
terms of an increased supply of such
apartments. Hence, industry players
including international ones such Ritz
Carlton, Four Seasons, The Ascott Ltd.,
etc. are ready with expansion plans to
explore their potential and opportunities
in India.

Studio apartments are usually the first to be sold out in a residential


project that features them. They are the most cost-effective residential
options for people who prefer to own rather than rent, especially in
locations close to workplace hubs. Another factor that drives demand
for such units is the ease with which they can be rented out or sold at
a profit on the secondary market. This also makes studio apartments a
prime target for investors. Moreover, studio apartments do not attract
high maintenance costs and make for hassle-free purchases as well
as resale.
Following are some examples of Studio Apartment Projects in India:
Project Name

Developer Name

Launch
Year

City

Callista

Joy Group

2012

Mumbai

Hiranandani
Solitaire

Hiranandani Constructions
Pvt. Ltd.

2014

Mumbai

Supertech
Upcountry
(Safari Studio)

Supertech

2010

Delhi NCR

Earth Studios

Earth Infra

2012

Delhi NCR

Rohan Iksha

Rohan Builders

2015

Bangalore

Esperanza

UKn Properties Pvt. Ltd.

2011

Bangalore

Blue Ridge

Paranjape Schemes

2010

Pune

Megapolis

Pegasus Properties

2009

Pune

Ekanta

Unitech Group

2013

Chennai

Xanadu

Siddha Group

2008

Kolkata

Source: JLL Research

30

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

Industrial and
Warehousing sector

Major changes foreseen in Indias taxation reforms and improvements


in the physical infrastructure could bring about a tectonic shift in the
way warehousing business is done in India. From merely being storage
units, warehouses would be upgraded and positioned as a supplychain partner to companies trying hard to meet the growing customer
expectations of quick delivery and more variety.

Traditional godowns making


way for modern warehousing
Indias growing economic prowess has been primarily fuelled by
the Services sector, whereas industrial sector remain languished,
contributing merely 24%to GDP in 2014. The sectors contribution to
Asias GDP averages over 30%. As a consequence, activity in the
industrial warehousing segment in India has remained lacklustre.
Economic hurdles in the form of inadequate support infrastructure,
irregular power and water supply, poor logistical integration etc.
resulted in industrial warehousing sector falling short of meeting
occupier needs. Few high quality industrial warehouses therefore
command rental premiums of about 30-40%. A renewed focus of
the union government on the manufacturing sector, combined with
an improving infrastructure and impending tax structure reforms is
expected to bring in sustained modernization of the countrys
industrial warehouse infrastructure over the next decade.
Difference between traditional godowns and modern warehouses
Godowns

Modern warehouse

Typical area

Under 50,000 sq ft

1 million sq ft or more

Typical rents

INR 12-15 per sq ft per


month or lower

INR 18-21 per sq ft per


month

Cost of
construction

INR 1,000 - 1,200 per sq ft INR 1,500 - 2,100 per


sq ft

Typical
clients

Companies seeking
makeshift arrangement

Companies seeking
long-term partnerships

Typical
design

Plain vanilla structure

Built-to-suit structure

Contract
9-12 months
period / terms
Source: JLL Research

5-6 years (lock-in)

31

Two types of warehouse exists currently traditional storage facility


(also called godowns) that largely operate in the unorganised
warehousing space, and modern logistics centers operated by players
in the organised sector. Market estimates suggests the organised
warehousing sector has a miniscule share of merely around 10-11%
in terms of total warehouse space. However, in terms of value, they
generate around 18-20% of the total warehousing revenues as they
command a premium on account of superior quality and greater
efficiency of operation.
Existing setup

Ongoing/Future development

Location planning driven by


tax savings

Location driven by supply chain


efficiency

Economies of scale acheived Economies of scale acheived with


with limited SKUs
large number of SKUs
Less automation, less usage
of technology

Higher mechanization, use of latest


technology

Small sized godowns, poor


in design

Large warehouses

Source: JLL Research

The low share of modern warehousing as of today is because of two


reasons outsourcing of warehousing and supply chain is still very
limited in India. Around 40% of warehouses are still company-owned
and the shifts from storage godowns to modern warehouses have only
just begun.

32

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

Changing business environment to reshuffle location


criteria for warehouses
The union government has announced April, 2016 as the deadline
for the country-wide roll out of Goods and Services Tax (GST). Once
the reform is in place, local tax considerations will have relatively less
importance in deciding the location of a warehouse, whereas more
operational efficiency parameters and customer-centric locations are
going to become key parameters.
The meteoric rise of e-commerce in India has boosted the demand
for allied industries and services, including warehousing. Warehouses
are expected to transform into multi-modal consolidation centres for
multiple sourcing locations, cross-docking centres for retail distribution,
sorting centres for customer door deliveries, an assembly facility for
final fabrication, bundling and loading.
The importance of zero-defect, high-speed warehouses handling bulk
of small transactions and greater product variety, other value-added
services etc., is much higher than what it was a decade ago. There will
be fewer warehouses, but each of them will be bigger, faster, and more
technologically advanced than their prototypes in the past.

Location criteria for warehouses

Current
ranking

Presence in Major warehousing hub

Proximity to customer centres

Accessibility from main transit zones

Local taxation rules

Availability of power, water etc.

Availability of labour

Proximity to fire station, hospitals etc.

The changing business dynamics is largely driven by increased


customer focus and growing support from government. Customers of
today demand more variety, higher quality and faster shipments. This
has resulted in exponential rise in number of Stock Keeping Units
(SKUs, or variety of products) that warehouses need to store. Demand
for hub-and-spoke model warehouses is expected to rise over the next
decade on the back of expectations of same day delivery or express
shipment options by customers.
Schemes such as Make in India, Smart Cities, and Digital India provide
incentives for multinational companies to set-up large manufacturing
facilities in India. With low cost of labour along with governments
push to enhance skills of rural Indians, as well as advancement of
infrastructure in the form of Golden Quadrilateral roads, dedicated
freight corridors, the Indian industrial warehouse sector is expected to
make a quantum leap over the next decade.

Likely shift in
rank

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hendrerit at lectus in tempor. Nam
dignissim, magna vitae tempus
ultrices, massa velit volutpat nisi, sed
finibus nibh ipsum vitae massa.

33

Current innovations
lay foundation for
future transitions

34

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

Real estate in India is still nascent compared to prominent cities


in Asia Pacific (APAC), and there is a constant endeavour by
all stakeholders to make it grow faster and accomplish maturity.
In the current market scenario, where existing developers or
suppliers have scaled up their operations significantly, new breed
of developers are finding innovative ways to grow and carve-out
a niche segment of their own. On the other hand, occupiers are
strengthening their internal real estate teams to optimise on their
portfolio of realty assets. Also, there is growing realisation that
transparency, governance, and sustainability are important factors
that will help catapult Indian real estate to international standards,
attracting global recognition and more investments.

7.1 New breed of developers


The last decade has witnessed emergence of a new breed of
developers in India who have made rapid inroads in the market
outpacing older, more established rivals by adopting some unique
selling propositions, which have fuelled their growth.
Lodha Group, a developer who came to fore during the last decade
made its presence felt across the value spectrum has projects
that range from affordable homes such as Palava (near Mumbai)
and Belmondo (in Pune) to luxury projects such as Fiorenza and
World Towers (in Mumbai). This is quite unlike the conventional
practices of developers such as Hiranandani and Oberoi who restrict
their product categories to the premium segment only. Another
developer who achieved explosive growth in the last 10 years
is Omkar Realtors, having tapped into a niche segment of Slum
Rehabilitation Authority (SRA) projects. Omkar rose to prominence
after the launch of large-scale SRA projects such as Cresccent Bay
(in JV with L & T Realty) (Bhoiwada, Mumbai), Altamonte (Kurar
village, Malad), and Omkar 1973 (Worli).

USP

Examples

Presence across
value-luxury spectrum

Lodha, Kalpataru

Expertise in SRA

Omkar Realty, Neumec Group,


Shapoorji Pallonji

Expertise in Redevelopment

Mayfair Housing, Man infra,


Paranjape Schemes

Skills in land acquisition

Jaypee, Indiabulls, Kolte Patil,


Lodha

Ability to attract massive PE


funding

3C / Lotus Greens, ATS, Embassy,


RMZ, Panchshil

Innovative finance schemes

Lodha, Indiabulls, Rustomjee

Innovative marketing tactics

Lodha, Tata Housing, Kanakia,


Dosti Realty

Online sales

Tata Housing, Godrej Properties,


Sobha, Purvankara

Source: JLL-REIS

Marketing tactics too have undergone a sea-change over the last


decade with developers now rechristening precincts to make them
more marketable Upper Worli (for Lower Parel in Mumbai) and New
Cuffe Parade (for Wadala in Mumbai) by Lodha and Upper Juhu (for
DN Nagar, Andheri) by Rustomjee Group are some of the cases in
point.

Few other developers such as Jaypee Group, Indiabulls Real


Estate, and Kolte Patil have excelled in securing land parcels for
large townships and mixed-use projects at suburban locations.
Others such as Mayfair Realty have a significant footprint in
redevelopment projects.

The equity IPO style marketing of apartments is increasingly being


adopted by developers Tata Housing conducted an online IPO-style
sale of apartments in multiple projects in 2013, and Lodha marketed
its upcoming Thane (Clariant Chemicals) project codenamed Big
Bang in 2015. More recently, developers are toying with the idea
of selling apartments online, having tied-up with e-commerce
companies Tata Value Homes tied-up with Snapdeal.

Innovative financing schemes such as guaranteed rental income


for the first 2-3 years that were introduced by developers such as
Lodha (Dombivali project) and Rustomjee at its Urbania project (in
Thane) are examples of other innovations witnessed in the sector.

The new breed of developers are extremely nimble-footed and are


open to innovative practices in marketing and financing strategies,
also focusing on untapped niche segments where they can specialise
and sustain.

7.2 Rising prominence of CRE


team within office occupiers
The current geographic scope of corporate real estate (CRE) teams
responsibilities could be largely city or country specific. The trend
is shifting towards scaling it up to a region or global level so as to
optimize workspace and capture benefits from workforce productivity
gains.
CRE teams are increasingly becoming centralised and global, being
more formally connected to the C-suite and better empowered to drive
change. This means, companies are beginning to view their property
footprint on a global, portfolio basis. This should enable CRE heads to
act with greater consistency across borders.
A conflict of interest arises when CRE teams report into the finance
department as they promote a myopic view of cost rather than value
generation from synergies. In the West, the strength of the CRE teams
mandate is currently stronger than what it was three to five years ago,
and the trend appears to be gradually percolating into APAC too, as
per the recent JLLs Global Corporate Real Estate Trends, published in
June 2015.
A centralised CRE team that has healthy interaction with various
business functions will be able to actively challenge the business about

35

its presumed space requirements, encouraging rational expectations of


real estate. Increasingly, CRE teams are expected to deal with a range
of tactical and strategic activity, thereby challenging the composition
and skills of CRE teams amongst occupiers.
Expectations from CRE teams would include improve workplace
productivity, improve asset (real estate) productivity, improve business
productivity, and improve people productivity. A notable area in
which CRE teams will be realigning with broad corporate strategy is
sustainability. Decisions to occupy Green Building spaces, Energy
Efficiency, Portfolio-wise risk assessment, Social performance tracking
etc. will be anticipated from CRE teams. This will compel CRE teams
to hire competent people who can deliver on such high expectations
that will be placed upon their shoulders.
Practice of outsourcing CRE management may come to fore as the
area becomes increasingly specialised or niche. CRE teams will
require scientific approach, data-driven strategic vision, forwardlooking and proactive style of delivery.
It may be difficult at this point in time to ascertain the proportion
of occupiers in India who have a dedicated CRE teams, although
on a global scale close to one-third occupiers have maintained a
dedicated CRE team. A dedicated CRE team acts as a bridge between
organisation structure and the strategic intent.

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

7.3 Consistent rise in real


estate market transparency
appears likely

Being the fastest growing nation in the world, India also faces the
challenge of balancing between industrial advancement and rising
levels of pollution / depleting natural resources. Needless to say,
sustainable development will be increasingly sought to effectively
address these concerns. Real estate, on its part, can help by
designing and constructing buildings that conserve resources such
as water and electricity, and increase usage of recycled materials.

JLLs Real Estate


Transparency Index

Considering the top cities (tier-I) in India, their ranking has significantly
improved from 50th position in 2008 to 40th position as of latest 2014
study. As per the report, the improvement was largely made on the
back of advancement in market data availability. However, in the past,
India has been subject to drop in ranking (in 2008 and 2012) owing to
reasons such as lack of transparency in its transaction processes, high
costs of investment transactions, and weak professional standards of
local agents. Given that many APAC cities are moving fast in terms
of improving their transparency quotient, thereby becoming more
attractive to global investors; Indian cities must make faster progress.

Source: IGBC

Source: IGBC

India crosses 2
billion sq. ft. of green
building footprint

2008

Karnataka State Police


Housing Project: first
pre-fabricated building
IGBC certified

More generally, India is likely to see faster improvements


in real estate transparency, with the new government
undoubtedly in a stronger position to push through
economic reforms.

Launch Indias first


green homes rating
program for residential
projects

Rajiv Gandhi
International
Airport, Hyderabad:
First green airport
facilitated by IGBC

2015

Launch of IGBC green


townships rating
system; MOU with
CREDAI (a builders
association) to promote
green buildings

Police Bhavan at
Gulbarga, Karnataka:
Indias first green
building

2008

Indian Green Building


Council (IGBC) formed
by CII

2014

India Milestones on Green buildings by IGBC


2003

After several rounds of discussions on introduction of REITs in India,


last year the government finally made the plunge and introduced
it. REITs are highly successful and beneficial in several countries
worldwide in terms of providing less risky investment options in real
estate to small and big investors, regular dependable income to unit
holders, drawing massive FDI in the sector, providing easier exit
options and liquidity to cash-strapped developers.

JLL global research

The importance of the impact that buildings have on human health,


environment and the economy is dawning fast on developers. It is
encouraging to see that a growing number of private developers
in India plan and design their projects with a view to maximizing
energy conservation and environmental sustainability. As of
June 2015, a total of 3,191 projects are registered with the green
buildings council (the IGBC) having a combined footprint of 3.05
billion sq. ft. Projects registered with the IGBC is incrementally
growing at a CAGR of over 50% in the last 10 years.

2012

It appears, however, that recent developments with regards to property


market regulation and introduction of new financing instruments have
immense potential to improve Indias position. Indian government
is likely to enact the Real Estate (Regulatory) Bill soon, seeking to
improve regulation over real estate agents and quality of land registry
records.

Green building
registrations on a
steady rise in India

In light of the requirement, the Indian Green Building Council


(IGBC), part of the Confederation of Indian Industry (CII), was
formed in the 2001 with a vision to encourage sustainable
practices and make India one of the global pioneers in sustainable
built environment by 2025. Over the years, the IGBC has created
a reputation for driving the change amongst builders and other real
estate stakeholders.

2001

The JLLs Global Real Estate Transparency Index, which is released


every two years and evaluates and ranks 102 countries worldwide
for their real estate transparency quotient ranks India the 40th most
transparent market.

7.4 A green buildings movement


is underway in India

2011

36

India crosses 3
billion sq. ft. of green
building footprint

37

38

I s I n d ia n r e a l e stat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

I s I n d ia n r e a l e s tat e h e a d i n g t owa r d s a t e c t o n ic sh i f t ?

Authors
Suvishesh Valsan
Assistant Vice President, Research

Conclusion
The on-going transition in the Indian real estate sector is interesting
and acts as a reflection of what lies ahead. As India narrows its gap
with real estate trends and practices of more advanced nations in
the West and APAC, everyone from local developers, government,
institutional investors and occupiers / homebuyers have got things
to look up to. The relationship between developers and investors
is poised to become more synchronised, enabling transition from
family-driven real estate business towards a more institutionalised
set-up. This will be a big positive for market transparency, as domestic
real estate sectors will criss-cross to new heights. On the other hand,
occupiers and consumers will have a variety of options of choose
from, given the market segregation and growth of niche segments,
which will enable choice on the basis of corporate/individual profile.
The governments role as an enabler for smooth sailing through this
new course of transition will be keenly watched by domestic and
international stakeholders.

suvishesh.valsan@ap.jll.com
+91 22 3985 1309
Suvishesh joined JLL in 2013 and is responsible for driving thought leadership and research publications, been part
of the Research & Real Estate Intelligence Service (REIS) team. Based in Mumbai, he also contributes to bespoke
research publications for all sectors of the real estate. In his over six years career prior to joining Jones Lang LaSalle,
he has served in financial institutions and research consultancy firms, specialising in macroeconomics, asset allocation
strategy and business research. Suvishesh holds a Masters degree in Economics from the Gokhale Institute of Politics
& Economics, Pune.

Vinay Upponi
Assistant Manager, Research
vinay.upponi@ap.jll.com
+91 99302 05302
Vinay is responsible for Real Estate Intelligence Service (REIS) analytics, bespoke assignments, and research
whitepapers. He has extensive background, spanning over 6 years, in business research having worked at Shoppers
Stop, CRISIL, and Emirates Group. He has worked on consumer demographics and real estate research with particular
focus on commercial real estate. He has passed 2 Levels of the CFA (AIMR US) programme and is a Bachelor of
Commerce from University of Mumbai.

Ketan Bhingarde
Analyst, Research & REIS
ketan.bhingarde@ap.jll.com
t: +91 22 39851310
Ketan Bhingarde joined JLL Research team in 2013. Based out of Mumbai; he leads the Mumbai residential market
towards research and REIS and contributes to the quarterly reports on Mumbai residential market along with the monthly
newsletters and bespoke research assignments. Ketan is a MBA in Urban Infrastructure & Real Estate Management
from Amity University and Bachelor in Mechanical Engineering from Mumbai University having more than 2 years of
experience in Research & REIS within JLL.

For research enquiries,


please contact:
Ashutosh Limaye
Head, Research and REIS
+91 22 3985 1319
Ashutosh.Limaye@ap.jll.com

39

About JLL
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