Asia Pacific CRE: Market Trends Update
The CRE markets in Australasia, India, and Singapore are dynamic and strong, as companies big and small – national and international – are relocating and/or expanding their offices to accommodate rising demand and economic benefits. Our partners in these countries, CityInfo Services and Franklin Shanks, break down below some of the most recent trends and insights.
What word would you use to describe the CRE atmosphere in your market, and why?
Cityinfo Services: India is at an interesting cusp in the evolution of corporate real estate. After living a rapid stage of infancy, new workplace concepts – including coworking and managed offices – are finally making their mark and are being recognized as very strong alternatives to traditional leasing options. With global brands such as WeWork entering India, and existing developers starting special business units to create such alternative workplaces, there is tremendous choice for Grade A and Grade B office space seekers in the country. This is largely driven by talent strategy and the flexible workplace concept which is emerging as a result – further driven by the strain on urban infrastructure and the aversion to travel on crowded roads, as public transport in general (and end-mile connectivity to mass transit in particular) matures.
The other big trend on corporate real estate can be witnessed on traditional space options – in Tier 1 & Tier 2 markets (viz. Delhi NCR, Mumbai, Bengaluru, Pune, Hyderabad, Chennai and Kolkata), which have been traditional centres of knowledge sector activity. This trend is consolidation. Corporations are looking at regrouping after an era of unbridled growth into their own campuses or into congruent locations within business parks. Such consolidated spaces are meant to act as hubs in the distributed workplaces strategy for most large corporations. Consolidation is helping knowledge corporations gain the advantage of collaboration and efficiency.
Franklin Shanks: In Australia – “Pinched,” due to historic low vacancies in the major markets. In New Zealand – “Growing,” since there’s more interest and investment coming. In Singapore – “Accelerating” – supply is declining, and there is a firm upward trajectory of rents.
What advice do you have for companies seeking office space in the Indian market?
Cityinfo Services: Companies need to work through their talent strategy, accessibility and location strategy more closely than ever before. While Tier 3 markets and alternative commercial hubs continue to emerge as options, the main talent concentration remains in Tier 1 and Tier 2 markets. The context that drives decision making on locations and options is a complex one – both from technical aspects, statutory considerations and commercial analysis. A complete and holistic analysis is required more than ever today to draw up the ideal strategy for real estate to support the intent of being a strategic business asset.
In working through this strategy, our advice to clients is to keep an open mind and evaluate as wide a range of options, across diverse alternative classes, as possible. Concepts such as distributed workplaces are giving rise to opportunities for innovation and portfolio optimization – and should form part of the consideration set.
Franklin Shanks: In all the markets we represent – Reserve adequate time. Most firms do not adequately plan for a real estate event, and consequently they are then forced to make compromises that either hurt the operation of the business or the cost of their real estate.
In Singapore specifically, suburban office rents are 25% – 30% lower than CBD rents. Large occupiers that do not need a city location have relocated to the suburbs (e.g. Google) or de-coupled their front and back offices where feasible (e.g. Singapore Exchange). Landlord incentives in Singapore are likely to be no greater than 1 months rent free, and thus firms will need to fund their own TI capex.
What advice do you have for companies seeking industrial/warehouse space in your market?
Cityinfo Services: The basic principles driving industrial and warehousing/logistics sector operations remain relatively unchanged in India – especially for mid-sized industrial corporations. In these basic principles, count access to transport hubs and ease of access for labour – skilled or unskilled. However, several of these parameters have changed. Mass transit in general, and the focus on metro connectivity in large Indian towns in particular, is a great boon for industrial workers and they are now willing to travel greater distances to get to plants. A recent initiative has also led to the push for affordable housing and several weaker socioeconomic segments and therefore, they are present in more locations with easier access to several industrial hubs. This means more catchments and more productivity.
The new wave of industrialization in India has also given rise to a wide range of incentives and benefits offered for diverse sectors – including the setting up of sectoral industrial parks. It has also given rise to the professionalism of industrial and logistics sectors and the emergence of organized players operating in them.
Industries need to consider all of these parameters while they decide on their location strategies and think through the process of portfolio growth.
Franklin Shanks: While there are often differences in negotiating with private vs. institutional landlords, these tend to be heightened when dealing with industrial/warehouse spaces. This also applies to dealing with Tier 1 agents/brokers vs. smaller independents. Wherever possible, conducting negotiations with a professional agent and an institutional landlord is preferable to ensure the best outcomes as well as a low-friction transaction.
We have also seen lately more consultants entering the market who seek high leasing fees from landlords, whilst purporting to represent the tenants’ interests. As a result, there have been multiple scenarios where tenants may not have seen viable options because the landlords of those properties were unwilling to pay the consultant’s fees.
How is the CRE industry being affected by the coworking trend?
Cityinfo Services: The emergence of coworking bodes well for the overall growth of real estate in India. However, this trend largely finds favour amongst small companies and start-ups. The interesting trend for mid-sized and large corporations is managed offices. These are really supporting the move of such corporations to evolve interesting new workplace strategies. Our view is that, while it has reached a certain level of evolution, the concept of alternative workplaces (including coworking and managed offices) will take some time to become more all-pervasive, particularly with regard to their spread and presence outside of Tier 1 and Tier 2 markets.
Franklin Shanks: A large quantity of vacant space is being taken out of the market by co-working groups in Australia, New Zealand, and Singapore – leading to lower vacancy rates and upward pressure on rents.
Many institutional landlords have created their own co-working brands internally to soak up space in under-utilised assets. As a result, there are instances whereby landlords have elected to put their own co-working brands into spaces that otherwise would go to an external co-working group.
What are the largest growing industries in your market?
Cityinfo Servicies: IT / ITeS continues to grow at a rapid pace and knowledge sectors are sustaining the growth of urban India. The manufacturing upswing that the country has witnessed over the past few years continues to grow unabated and will continue to be a strong contributor to growth. In urban India, the other big trend is retail and leisure – as income levels continue to rise people are looking for more enriching social experiences and retail/leisure sectors are investing significantly in building innovative and new-age facilities to cater to this demand.
Franklin Shanks: In all our markets – tech, financial services, and co-working are the dominating the growth. In Australia, the four fastest growing industries are Health care and Social Assistance, Construction, Education and Training, and Professional services (as of the end of 2018).
What is your market’s current vacancy rate?
Cityinfo Services: It would be between 11-12 % for Grade A space
Franklin Shanks: In Australia – 8.3%. This is misleading though, as the two biggest markets – Sydney (4.1%) and Melbourne (3.2%) – are at or close to historic lows.
In New Zealand – 8.2%. Again though, this is misleading as Auckland is at 5.6%.
In Singapore – 7.5%.
What else should tenants know about your company and/or CRE in your market?
Cityinfo Services: Cityinfo celebrates is 23rd year this year and proudly remains a flag bearer of independent advice focused on occupier best interest. We committed ourselves to the concept of value maximization early on in our journey as a real estate consultant and we have remained true to this principle. Value maximization starts with giving the most appropriate advice, and we have built a wide range of tools, techniques and best practices, in addition to research infrastructure across the country, to continue to deliver on our promise of being true partners in the growth of our clients, from a real estate portfolio management perspective.
Franklin Shanks: As a firm not only do we exclusively represent tenants, but we also do not take fees from landlords and thus are a truly independent consultancy practice. Market conditions are such that an advisor also plays a critical role in positioning the tenants at the “top of the pile” as far as being able to secure space.
Cityinfo Services is one of the largest tenant representation firms in India – with offices in six major cities and 23 years’ experience providing excellent service to tenants in their markets. Interested in learning more about the Indian market? Contact Cityinfo Services.
Franklin Shanks provides agile and innovative solutions to both local and global companies including tech giants such as Dropbox, Uber, and Twitter. They service companies in Australia, New Zealand, Hong Kong, Singapore, the US and Asia. Interested in learning more about these markets? Contact Franklin Shanks.
Additionally, our Chinese partners, Changyi, although not represented in this article, provide expert insight and tips into the Shanghai market and its surrounding cities. Contact them for more information.