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CII-JLL's report on realty sector: Office space absorption increased with demand from export oriented service industries
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 skillful 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.

CII-JLL report on real estate sector, titled: 'Is Indian Real Estate Heading towards a Tectonic Shift?' was released today at CII WR Real Estate Conclave 2015. The report highlights on various components of real estate:

Office:

The trend of companies migrating to offices in suburbs - driven by a combination of cheaper rents and lesser commute times for workforce - has risen sharply over the last decade. Not only the location-independent IT/ ITeS companies but other sectors too are setting up office spaces in secondary business districts (SBDs) and peripheral business districts (PBDs).

The migration is driven by occupier demand for 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. While the share of SBD in office stock has remained stable over the last several years at around 43% of the total office stock, CBD has witnessed a severe attrition of occupiers and a decline in fresh supply of office space that has led to a significant drop in its share of office stock from about 33% in 2004 to 10% in 1H2015.

Delhi NCR has witnessed the most spectacular emergence of alternate business districts in Gurgaon and Noida. 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 to SBD precincts.

When it comes to occupier profile, the share of IT/ITeS sector in leasing volumes has declined from 48% in 2005 to 32% at the end of 2Q 2015. This lower absorption, though, is compensated to a large extent by new-age sectors such as eCommerce. While space absorption declined in the manufacturing sector, it increased in export-driven sectors of healthcare and bio-tech. Banking, financial services and insurance (BFSI) has been relatively stable through the last decade.

Retail:

Malls are seeing a lot of churn in recent years. On an average, when business is good, churn rates of around 15-18% have been recorded. In India, the range was 4-8% in well-managed malls during the initial years. Poorly performing retailers exit malls midway through their lease contracts or landlords initiate churn to improve their portfolio of tenants at some locations while at unviable locations, retailers are driving the churn. Contract periods have shortened to 2-5 years today from 9-20 years seen in the mid-2000s.

Residential:

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.

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.

Transition of the 4Ps:

The last 10 years have been quite dynamic, as each of the fundamental 4Ps of real estate -Players, Processes, Product and Places - witnessed a plethora of changes.

"Indian real estate has undergone a lot of change in the last 10 years. As its core sectors - office, retail, residential and industrial - evolve, the latest whitepaper by JLL Research tracks the industry's transition and reveals the key trends in this journey," said Anuj Puri, Chairman of CII WR Real Estate Conclave 2015 in a press release.

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