5 trends that will reshape India's real estate market

At a time when capital allocations to real estate are growing globally, investors are expecting transparency standards in real estate to be at par with other asset classes, says Anuj Puri.

Among the many factors influencing the way real estate is developed, transacted and used in India, there are five big major emerging trends that have both real-time and long-term significance.

Co-working spaces finding favour

With the growing start-up ecosystem across India and the central government creating an enabling environment for entrepreneurship, demand for office spaces matching such firms’ requirements has gone up in the last few years.

Also, due to the rising number of freelance professionals or consultants in today’s globalised workforce, office communities or co-working spaces are gaining popularity.

Co-working spaces are popping up across Indian metros as well as tier-II cities, and are helping many start-ups get flexible working options at prices they can afford.

These spaces offer desks at cheaper rentals and some also allow a rent-free period to tenants apart from utilities and an office-like look-and-feel to potential start-ups.

Some of the co-working places also work as incubators for the urban centres they are based out of.

Interestingly, start-ups buying/ leasing real estate to sub-lease it to such tenants is also on the rise. At a rough estimate, over a 100 of such players are already active across India. This trend is slowly and surely catching up in India.

Crowdfunding beginning to take hold

Crowdfunding helps innovators raise money for launching their products or services through the Internet.

The practice involves raising small amount of money online, from many people across the globe, to finance a project or venture.

While other industries have seen the emergence of a more dynamic crowdfunding scene, real estate’s popularity still has a lot of catching up to do.

Some experts have pointed at the maturing crowdfunding scenario in the USA, where the amount of money raised and size of deals as well as the speed at which they occur have all steadily increased.

In China, the real estate industry is no longer the exclusive preserve of big investors, and property developers have turned to crowdfunding to help finance construction of commercial and residential projects.

Although in nascent stage in India, crowdfunding can pick up here as well because the financials of many developers are stretched.

With increased digitalisation and transparency, investors can be expected to open up to this way of investing if they can expect good returns.

Already, non-resident Indians can invest in the country’s real estate under the same conditions applicable to residents.

Moreover, a marketplace is already bringing together real estate investors as also listing premium plots, apartments and villas. This sector is likely to evolve and grow in the coming years.

Transparency to increase and help attract more funding

Two-thirds of the real estate markets globally have shown progress in their levels of transparency over the past two years, according to JLL’s Global Real Estate Transparency Index (GRETI) 2016.

India too made improvements in overall transparency scores by moving up four places, and its tier-I cities are expected to break into the transparent category in the 2018 rankings.

Out of 109 countries, the top 10 highly-transparent markets alone corner 75 per cent of global investment into commercial real estate (CRE), highlighting the extent to which transparency drives real estate investment decisions.

At a time when capital allocations to real estate are growing globally, investors are expecting transparency standards in real estate to be at par with other asset classes.

Capital allocations in excess of $1 trillion will be targeting CRE within the next decade, compared to $700 billion now.

This growth means investors will continue to demand further improvements in real estate transparency.

There’s also mounting pressure from the world’s growing middle classes to weed out corruption from real estate, which will speed up this pace of change especially in the semi-transparent markets.

Social media will also help mobilise people in this direction.

Retailers looking favourably at office-retail complexes

For quite some time now, retailers have been roadblocked by lack of available quality retail space.

At such a time, office-retail complexes (ORCs) are emerging as alternatives to high streets, and even malls, for some categories of retailers such as F&B (quick service restaurants, coffee shops, fine dining, pubs, etc.) or BFSI (bank branches, ATMs, broking services, etc).

Since most part of the day of a working individual is spent at the office during weekdays, retail services benefit immensely by locating themselves close to, or within, business districts.

Retail categories such as telecom services, office formals, leather bags and accessories, high-end fitness centres, premium salons, eyewear and mobile manufacturers are now all looking favourably at ORCs.

Of the total retail presence in office buildings across major tier-I cities, a dominant 26 per cent is occupied by F&B and a significant 23 per cent is occupied by retail BFSI outlets.

While retailers get the dual advantage of paying lower rents compared to premium spaces in Grade A malls and closer access to their main target segment of office-goers, developers are also open to experimenting more with a mixed-use format rather than a standalone retail format.

This way, they can allow for quality retail on the lower floors and commercial spaces on the upper floors.

Technology transforming real estate requirements across the globe

Tech-enabled workplaces are becoming more common across the globe. In the US, research on the budgets of clients’ interior build-outs are showing interesting results, with IT costs as a proportion of overall construction budgets increasing rapidly.

Earlier, they were around 5 per cent of the overall construction budgets over the last decade.

More recent build-out budgets show the expansion of IT services from cabling and wiring to more than a dozen items for technology, including access devices, infrastructure, mobility, connectivity, data security systems, wireless connections and upgrades, business-specific apps, company-specific conferencing and presentation capabilities.

All of these items can add up to 35 per cent or more of a budget for a truly technology-focused company.

This theme is seen in every tenant build-out today, from traditional law firms to new campuses built by companies like Facebook and Apple.

The aesthetics and prestige of an office, which were formerly the primary considerations, are beginning to take a back seat to the technology and the connectivity within buildings.

Some corporate occupiers in India are starting to invest more in expansion of their IT infrastructure.

Anuj Puri, is chairman & country head, JLL India.

Photographs: Robert Galbraith/Reuters and Erin Siegal/Reuters