The startup world, for sure, moves at a rapid pace.On January 2, Vaibhav Jaiswal, 32, launched 1stKEYS.com in New Delhi, a real estate startup that offers brokerage and other services. Over the past 20-odd days, he has ramped up his staff count to 40 — 20 each in IT and sales & marketing. The IT team operates out of a small space in Ashok Vihar, North Delhi. “The sales & marketing team operates out of anywhere — homes, cars and cafes,” says Jaiswal. They won’t have to operate that way for long.In the coming month, Jaiswal and his team will move to a 2,500 sq ft, 25-seater office space in Spaze i-Tech Park on Sohna Road, Gurgaon. “It’s a nice office with a corporate feel. We will have OYO Rooms and the Hero group as our neighbours,” he beams. Backed by investors from London and Dubai, amongst other global outposts, Jaiswal has big plans. In six months he hopes to open branch offices in Noida and Mumbai. And by the year-end, he aims to have eight offices in India and two overseas. “We will need to keep expanding,” he says.

Last November, serial entrepreneur investor Ritesh Malik, 26, started a co working space Innov8 in Delhi’s Connaught Place. The hub is a hip oasis in an otherwise run-down Regal Cinema building. Within two months of its launch, the 9,000 sq ft hub is operating at peak capacity, teeming with 40 startups and 112 people. “We got over 500 applications out of which we chose 112. Operationally, we began making money from day one,” he says.

Encouraged, Malik is exploring a range of opportunities — coworking hubs in other cities such as Mumbai, Bengaluru and Pune. He is also toying with the idea of setting up a chain of coliving hubs where startup workers can live and work.It is easy to be a sceptic today. Frenzied — and a tad hyped — growth among startups in India is a well-tracked story. Despite the International Monetary Fund calling India a bright spot in difficult times, there is plenty for the Cassandras to worry about. Global headwinds, turmoil in China, leveraged India Inc, muted capital expenditure, bearishness on Dalal Street , a contraction in the latest Index of Industrial Production, and banks grappling with high non-performing assets...the list of concerns is long.Yet some new data has begun to reveal that the buoyancy in the economy could be much broader, deeper and steadier than one thought. “2015 was the best year ever in corporate office leasing in India,” says Anshuman Magazine, chairman, CBRE South Asia, a real estate consultancy firm. Experts say corporate office leasing is a good proxy to gauge how India Inc sees the future. And the signals seem unequivocal.To be sure, Magazine is looking far beyond startups to firm up his assessment. In India’s top seven cities, offtake of Grade A corporate spaces — mostly occupied by large, pedigreed corporates — has surged to 38 million sq ft (see It was the Best of Times...). The last peak was 34 million sq feet in 2011. “I am more optimistic about the Indian economy and the real estate sector today than at any time in the last 15 years. I see moderate growth, meaning sensible growth,” says Mike Holland, chief executive, Embassy Office Parks.As a corollary, pan-India office market vacancy (see ...and Office Vacancies Dipped) has dipped from 18.4% in 2013 to 15.4% in 2015 and is expected to further decline to 12.7% by 2017, according to Jones Lang Lasalle ( JLL), a real estate consultancy firm.The biggest occupier of Grade A office in India, the Information Technology (IT)/ Information Technology enabled Services (ITeS)/ Knowledge Process Outsourcing (KPO) sector, continues to lead by a huge margin, leasing 53% of the office space in 2015. The Banking, Financial services and Insurance (BFSI) and manufacturing sectors both have dipped slightly — from 15% and 16% in 2013 their shares have dipped to 12% and 10%, respectively. New sectors such as ecommerce are growing rapidly and their share has gone up from 2% in 2013 to 5% in 2015.



Some industry estimates have actually put their share in 2015 at 10%. While Bengaluru remains India’s largest market for office space in the country, tracking lease rental trends over the years offers clues into how the top seven Indian cities stack up (see Rentals in NCR CBD beat Mumbai). While lease rentals in the central business district (CBD) in Mumbai and Kolkata have dipped between 2011 and 2015, they have increased in NCR, Bengaluru and Pune, reflecting healthy demand.



Global Investors Eye India

There are many reasons for the buoyancy in commercial real estate. At least partly, it could simply be a shuffling of office spaces by India Inc. “A lot of growth is about gross absorption of office spaces. Companies are upgrading, relocating and consolidating their old offices,” says Yash Gupta, managing director, Hines India.



Typically, multinationals sign up 10-year leases for corporate offices. Many of them — signed up between 2005 and 2007 — are up for renewal. “While corporates have had real estate needs earlier, they were not willing to take capex-heavy long-term decisions as they weren’t sure about the economy,” says Gupta. The government’s intent and thrust on economic reform are now giving them the confidence to take those big decisions. So companies like GlaxoSmithKline Consumer Healthcare have recently moved into new campuses, consolidating and upgrading their offices spread across multiple centres.





And Apple is the latest marquee brand to bet big on India, having applied to open a flagship store in Mumbai. The launch of top-end corporate offices like One Horizon Center in Gurgaon — a joint venture between property management firm Hines and developer DLF — is also tempting companies such as Coca-Cola to upgrade and shift their corporate office to a swanky new facility.

The robust demand, declining vacancy rates and rising lease rentals are also a factor of the demand-supply equation in the commercial real estate sector. Many developers, having burnt their fingers between 2009 and 2012 in commercial assets, had shied away from making new investments, says Ramesh Nair, chief operating officer (business & international director), JLL India. According to CBRE, Grade A office space in the top seven cities increased only marginally from 350 million sq ft in 2011 to 478 million sq ft by 2015.Bengaluru was perhaps the only city where new commercial projects were rolled out. Take DLF, for example. After adding 3 million sq ft of new commercial space in 2012, it has mostly focused on upgrading its existing properties in the last few years. It spruced up 14 million sq ft of its office space to get Gold LEED certification, a green building rating system, in the last few years. “We are now adding capacity after a gap of three years,” says Amit Grover, national director (offices), DLF India. It is building 3 million sq ft of new office space in Gurgaon and Chennai.But perhaps the biggest catalyst is the growing interest among foreign investors — from global real estate players like Hines and Ascendas to institutional investors like CDPQ and private equity firms like Blackstone — to invest in India. “Commercial real estate is riskier with a longer gestation period than residential. What I see is that risk appetite among institutional investors for commercial real estate has gone up substantially in the last few years,” says Sanjeev Dasgupta, chief executive officer, Ascendas Property Fund Trustee, an Asia-focused provider of business space solutions.Ascendas, which entered India in 1995, has invested Rs 9,000 crore and has 9 million sq ft of income-producing space so far, says it will be developing over 5.6 million sq ft of business space in India in the next twothree years. Hines, which entered India a decade back and has invested close to $500 million in two commercial projects so far, could invest as much if not more in either debt and / or equity in the next five years.Many other investors such as Blackstone — the largest owners of office parks in India — sovereign funds such as Government of Singapore Investment Corp and CDPQ, an institutional investor from North America, are looking at India seriously.Their interest is understandable. The Indian economy looks like a bright spot in a world going through tough times. All BRICS (Brazil, Russia, India, China and South Africa) economies, except India, seem to be headed for the slow lane. Betting on India makes sense to these investors. However, it is also true that global investors in India have gone through some difficult learning curves. For example, CDPQ’s real estate arm Ivanhoé Cambridge entered India in 2007 but exited in 2011 after they could not find the right formula to make direct investments in India, which is also time consuming.It is now looking at India with renewed interest. “Global investors in India, some of whom have learnt some painful lessons in the past, are today much more knowledgeable about the market here,” says Mike Holland, chief executive, Embassy Office Parks, a joint venture for commercial spaces between realty player Embassy Group and Blackstone Group. Embassy Office Parks today has 24 million sq ft of office space under ownership-management and plans to build 12 million sq ft of new space in the next three years.The government too has done its bit. Easing up of restrictive foreign direct investment norms in the sector too has helped, says Dasgupta. Last year, rules around exit, repatriation of funds and project size for overseas real estate investors were eased up to revive investor interest.The obvious question to ask is how does this uptick in the commercial space play out in the residential sector? Post 2011, most developers had shifted their thrust solely to less risky residential projects as they burnt their fingers in commercial projects. Thus, residential has been reeling under oversupply, low demand and high inventory. The glut is now beginning to unwind but experts give it 12-18 months before hoping to see a demand buildup. “Residential sector has bottomed out and I see it slowly bouncing back,” says Abhishek Goenka, partner, PricewaterhouseCoopers India.As the growth in commercial real estate gains momentum, qualitatively many things will be different this time. As compared to the speculative and hype-filled boom years of 2006-07, the current uptick is a more mature economic cycle that will make it more sustainable, moderate and consistent, says Grover of DLF. The boom period of 2004-07 was an era of unbridled growth, but the capacity to deliver in India was poor, explains Holland of Embassy Office Parks.Comparing 2015 to 2011 too shows how different the two cycles are. “2011 was all about defensive decisions. The real estate cycle was headed downwards and people wanted to make the most of the dip,” says Anckur Srivasttava, chairman, GenReal Property Advisors.“Today, we are on an upward curve and there are expectations that the real estate costs, especially in prime locations, will rise in future,” he says. From a tenants’ market in 2011, where they called the shots, it has now become a developer’s market as there is scarcity of high-quality commercial buildings. Some other important shifts are visible.Deal sizes are getting bigger, signaling rising scale and aspirations of companies. Last year, Flipkart booked 3 million sq ft of prime office space in Bengaluru. This was the largest lease deal in India’s history. In 2011, interest in buying commercial real estate was low as companies did not want to lock in their capex in an uncertain economic environment, says Nandakumar OP, vicepresident (leasing), Prestige Group, which has Prestige Estates Projects as its flagship company.That has changed. This is especially stark among MNCs who were always averse to locking capital in buying real estate spaces. Many MNCs such as Abbott, Adobe, Honeywell and Sandisk, along with homegrown entities such as Axis Bank, have been investing in commercial realty. “I did not see this trend in the 2010-12 period. Corporates buying (such illiquid and costly) assets reflects a certain confidence in the economy and the future,” says Dasgupta of Ascendas.There is a marked shift in demand for better quality worldclass buildings. Companies want a full ecosystem of office spaces combined with food courts, places for breakout sessions, sports centres and clubs besides a building that is energy-efficient, environment-friendly with high-grade security, safety and connectivity.After it gets Gold LEED Certification for the 14 million sq ft it has upgraded, DLF will aim for Platinum LEED Certification for their new projects. “We are trying to offer sporting zones in our facilities,” says Grover. One Horizon Center comes equipped with a complete ecosystem of retail, office and restaurant outlets, amongst others, and has been lapped up by corporates such as Apple, Facebook and Coca-Cola. Holland of Embassy Office Parks says they have taken a decision to build a business hotel inside all their business parks.Startups too are reshaping the commercial real estate market in their own way. Demand for coworking spaces and other new concepts has been growing rapidly. WeWork, a global startup that builds coworking hubs, has big plans for India, its cofounder Adam Neumann announced at the recent Startup India event.Homegrown startup Quest Offices — which builds service offices where companies can just move in, with everything from IT to engineering, office administration, front office and the like being taken care of by Quest — has big plans. The two-year-old company that offers four 70-seater office spaces to companies already has 20,000-sq ft each in five locations.“We plan to have 20 such facilities in 12 months with over 4 lakh sq ft of space,” says Gopal Gowda, executive director, Quest Offices. He says the service office space, growing at 40% annually, is likely to explode with a growth rate of over 200% in the next three to four years. As entrepreneurship get glamorous, startups are also seeking Grade A office spaces.“Earlier, it was mostly large, established companies that would go for such spaces,” says Srivasttava. Not surprisingly, larger developers such as DLF are making space for them. For example DLF has been leasing spaces to new generation business centres like Regus, The Executive Center, which offers flexi-working spaces to startups and incubators.There is another new trend that experts are spotting. “Companies no longer want closed cubicles. They are looking for open-plan offices with a lot of socialising space that fosters a collaborative work culture,” says Nandakumar of Prestige Group. GlaxoSmithKline has moved into its new office where it has an open plan with no dedicated desks. “Global trends like hot-desking and Workplace 360, where people do not have assigned desks, are gaining traction among corporates in India,” says Magazine.