Mumbai: Hope on the Horizon. Mapping out the future of the Mumbai Office Market Offices 2020 City Report

Transcription

1 Mumbai: Hope on the Horizon Mapping out the future of the Mumbai Office Market Offices 2020 City Report

2 Offices 2020 Mumbai Preparing for the changing trends of today As part of a suite of Office 2020 reports on six Asian cities, this report seeks to answer Where next for Mumbai? Themed around seven specific real estate questions, we explore how the big picture will shape the Offices landscape to This is not about predictions - it s about building the best possible assumption base about the future in order to support your preparations and future decision-making. You might call our Offices 2020 initiative a Foresight with a Purpose. 2 Mumbai: Hope on the Horizon

3 Mumbai - Are you ready for the Future India and Mumbai are currently riddled with economic and political woes, however, there is hope on the horizon. Before the financial crisis, things were looking good. Jim O Neill of Goldman Sachs coined the term BRIC in 2002, and for a certain period of time, investors wholeheartedly believed the Indian story. The huge population, rapid urbanisation and growing middle class ticked all the boxes. Steady reforms were underway, and the big multinationals came to view India as a market that could not be ignored. The fundamentals today remain in India s favour, presenting significant upsides to the Gateway of India - Mumbai. The question will be whether policymakers can maximize the opportunities in Mumbai in the build-up to India s demographic profile is one of the country s largest assets, and not the liability as it was once thought. Its young population and growing middle class is a stark contrast to many of its regional competitors. It has been calculated that by 2050, India s workforce will be virtually as big as America and China combined potential. Whilst this obviously presents huge opportunities, the challenge will be to produce appropriate jobs for the rapidly swelling young, qualified workforce. Mumbai will continue to grow and become more sustainable Mumbai continues to offer a wide range of job opportunities, and it reflects in the migration pattern too. While Mumbai s manufacturing sector has relocated to its satellite towns and extended suburbs, its services base is the most diversified. Banking, Financial Services, Insurance, Consumer Goods and Services, Electronics, Healthcare, Media and Entertainment, IT Services, Professional Services, Transportation and Logistics, among others make Mumbai a City of Opportunities. This report will provide some answers to how the city of Mumbai is readying itself for increasingly competitive office landscape emerging in the country. Starting the conversation: At the end of each section of this series of city reports, we have interspersed some thought-provoking questions to inspire further consideration on the implications of our findings for your business. In order to be positioned for the future, have you thought about these things: Mumbai will continue to grow, but what risk factors are holding it back? With the birth of new multiple CBDs, how will Mumbai s business environs look like? Buildings in Mumbai are ageing quickly - what aspects to be considered while contemplating relocation? What will be the effect of the changing workforce profile and technological advancements on Mumbai s office landscape? Are tenure generalisations fading as the office market enters a stage of flux? Will the bandwagon effect apply to the entire industry, with respect to sustainability? Will the Maximum City be able to copiously harvest the emerging growth opportunities by 2020? Ramesh Nair COO - Business India ramesh.nair@ap.jll.com Ashutosh Limaye Head - Research and REIS India ashutosh.limaye@ap.jll.com Karan Singh Sodi Regional Director - Markets Mumbai karan.sodi@ap.jll.com Join the conversation and share your views by visiting Mumbai: Hope on the Horizon 3

4 Offices 2020 Mumbai FOCUS FOR GROWTH Mumbai will continue to grow, but what are the risk factors holding it back? Mumbai is sometimes known as the Maximum City, a dynamic metropolis that is always growing. The city alone contributes to around 5% of India s total GDP, in part because of its perceived position as the financial capital of India. Whilst Banking, Finance, Insurance and Professional Services are the major sectors of growth, the Shipping, Manufacturing, Pharmaceuticals, Media and Entertainment sectors are also prominent contributors to the city s success. Looking ahead, what are the factors which will drive growth over the next seven years. Given these drivers, Mumbai will generate further employment within prominent growth sectors, such as Pharmaceuticals, Research and Development, Retail, Media and Entertainment. The greatest hope is for Mumbai to become like Shanghai in terms of having excellent infrastructure attracting multinational companies. The reality is, this won t be achieved within the 2020 time frame, although through investment and implementation, we could now see this dream become a reality in the not-too-distant future. The worry for Mumbai is that it may be surpassed by other Asian cities in an increasingly competitive market. Cities such as Delhi and Chennai are increasingly competing with Mumbai. Infrastructure investment and other upgrade programs have resulted in some operations moving away from Mumbai. Delhi puts in place a 10-year plan and is clearly making progress whilst Bangalore is coming up strongly too. Mumbai is losing Shipping and back-end Financial jobs to Chennai, and even the townships around Mumbai are benefiting from the migration from the City centre. How will this tip the scales? Fortunately, the city s gravitational pull will remain strong over the next seven years, although the city will be increasingly challenged and it will become imperative to proactively fulfill the needs of its citizens. Mumbai will remain the gateway to India, and with India representing such an influential slice of the Asia Pacific (APAC) pie, it will undoubtedly remain as a mainstay of the APAC region. Table 1: Mumbai: Hopes, Drivers & Inhibitors Hopes City Master Plan instated for Mumbai Holistic planning, including the hinterland Stable government and alignment between local and national ambitions New airport in Panvel becomes operational before 2020 Affordable housing for the workforce Betterment of the existing road and rail infrastructure Inland waterway transport system becoming operational Drivers World s largest democracy Comprehensive legal and tax system Competitively priced talent pool Educated workers, both domestically and internationally Mumbai as India s most cosmopolitan city Population growth Access point to India s growing middle-class markets Significant national financial center Inhibitors Competing cities overtaking Mumbai Dubai coming back strongly as a Financial and Trading powerhouse Prices staying high, especially for residential and expat housing Retrospective laws damaging confidence New policies favourable to commercial developments 4 Mumbai: Hope on the Horizon

5 October 2013 India GDP Growth Forecast to 2018, combined with Mumbai population growth forecast to 2021 Year GDP Growth (%) Year GDP Growth (%) F F F F F F 6.7 Source: RBI (Reserve Bank of India) and IMF (International Monetary Fund) Note: 1. For the period 2005 untill 2013F, data is sourced from the RBI, and for 2014F untill 2018F, it is sourced from the IMF. 2. The IMF considers the calendar year (Jan - Dec) for growth figures, whereas the RBI considers financial year (April - March) for growth. Year MMR Population (Million) Source: MCGM (Municipal Corporation INHIBITORS of Greater Mumbai) Note: MMR Stands for Mumbai Metropolitan Region MCGM Population (Million) Share of leased office space by sectors 100% 90% 80% 70% 60% 50% 40% 30% 20% 1% 7% 1% 47% 30% 7% 5% 3% 2% 6% 3% 40% 2% 22% 52% 6% 22% 7% 12% 2% 6% 2% 3% 3% 5% 2% 3% 7% 3% 7% 6% 7% 11% 8% 12% 3% 5% 7% 5% 6% 9% 36% 10% 15% 48% 5% 12% 2% 3% 5% 5% 3% 6% 11% 10% 6% 10% 6% 36% 22% Miscellaneous Transportation & Warehousing Telecom Real Estate & Construction Media & Entertainment Hospitality & Tourism Healthcare Energy & Utilities Electronics Consumer Goods & Services Professional Services Manufacturing 10% 27% 29% 23% 22% 21% 27% IT Services Banking, Financial Services & Insurance 0% YTD Source: Real Estate Intelligence Service. Starting the conversation: Plan your future space requirements. Mumbai will continue to be acknowledged as the largest office market and financial capital of India. That said, the existing end-users or occupiers should utilise this window of opportunity for strategic office space acquisitions - be it leasing or buying. Being ahead of the curve and having a clear sight of the future space requirements will place occupiers in a stronger position to influence what gets built and demand better commercials. Given the projected supply and stringent statutory approvals environment, this is the right time to absorb relevant quality office space. Know your customers. Going forward, collaboration between landlords/ developers and occupiers will become increasingly important in the Mumbai office market. Anticipating their needs and locating and configuring office space in a way that adds value will be crucial. The current office vacancy rate stands at 2, with most of the vacancy being in Grade B and C stock that doesn t cater to the requirements of most end-users. The developers must bring forth changes to the formats, specifications and quality in a cost-effective manner to generate the demand needed for the Mumbai office market to flourish. Mumbai: Hope on the Horizon 5

6 Offices 2020 Mumbai LOCATIONS OF CHOICE How will the emergence of multiple CBD s shape the business geography of Mumbai? Compared to other cities, Mumbai s office hierarchy is being shaken up, and locations aren t what they used to be. The old Mumbai CBD has lost its crown and glory. The most obvious example of this was seen in South Mumbai, where office demand moved away from traditional CBD locations of Fort, Churchgate and Nariman Point. The change in demand patterns were sparked by the lack of quality office stock and the complicated ownership structure that was evident throughout South Mumbai, as a consequence, companies looked for and found alternatives outside the traditional areas. So what will become of this area in 2020? There will be an accelerated migration of MNCs from the CBD and some distress sales linked to this, unless the state government conceptualises and executes a comprehensive action plan to regenerate the CBD. The impact will be partially negated by other tenant types taking up space, such as law and accountancy firms, shipping companies and creative industries. Meanwhile, it is inevitable that some offices will be converted to residences or hotels. However, the flagship Starbucks in Fort is a confident signal that business will not foresake this area totally and, of course, tourists will continue to be attracted to its quality hotels and colonial heritage. Businesses relocating out of South Mumbai are not following a uniform pattern, and this is going to be a significant characteristic of the reshaped Mumbai office map. Limited infrastructure and high commuting times will lead to a number of mini CBD s developing over the next few years. Upcoming areas include: Hotspots South Central Mumbai (Lower Parel, Worli) Bandra Kurla Complex (BKC) North of Airport Navi Mumbai to the East Dharavi Chembur Vikhroli Limited infrastructure and long commuting time will lead to a number of mini CBD s developing over the next few years. Indeed, some argue that this growth of locations means no more hotspots, but a more generalised dispersion of offices. The model seems to be that one 6 Mumbai: Hope on the Horizon

7 New locations to the North of the airport will most likely be taken by back-office activities. Here, offices are going to be more fat and short rather than elsewhere where tall and thin buildings are more common. company leads and opens up in a new location and others soon follow suit. Redevelopment will be a key theme going forward. It is suggested that as much as 15,000 acres of land be available for redevelopment in and around Mumbai. Around 200 acres of land belonging to Mumbai Airport is either lying vacant or can be freed, much of it lying on the hinterland, providing the city its much needed space to grow. New locations to the north of the airport will most likely be taken by back-office activities. Here, offices are going to be wider and shorter rather than elsewhere where narrow and tall buildings are more common. residential developments. In most parts of the city, prices for residential properties are higher by %, and most developers are focusing on residential development, posing a serious challenge of limited new supply of office space. This is majorly due to the new DCR being more favorable towards residential developments. But whilst locations show a widely dispersed pattern, one thing is highly common: the new build locations are focused on Grade A - modern buildings built to international standards. BKC, the reclaimed marshland reserved for planned commercial development, has been highly successful at attracting and retaining prominent occupiers, although it might struggle in the near future, given the current woes in the BFSI sector. Currently, it lacks the retail and F&B amenities, but it is likely to change in the future. For now, BKC is a destination of choice for occupiers who can afford it. For occupiers on tighter budgets, secondary locations may be preferable, given the upcoming infrastructure developments. A second international airport being constructed near Panvel, the Mumbai Trans Harbour Link (MTHL) over the Thane Creek scheduled for completion in 2019 and a new west-east monorail bound to open up this area - because of this increased connectivity, Mumbai will begin to feel less like an island. Navi Mumbai market has the potential to become a booming region, but progress will be slower than what the developers hope for. Once again, issues about inadequate infrastructure and amenities - alongside the uncertainty surrounding the second international airport trouble the occupiers. Another challenge that the city must accept and strive to resolve is the possible shortage of quality office space in the future. This is further compounded with the new DCR being more favourable towards In sum, successful locations in Mumbai will have the following features: Criteria for Ideal Locations Effective public transport systems Good car, taxi and autorickshaw access Parking Proximity to customers, suppliers (and competitors) Security Food and fine dining Shopping and entertainment Walk-to-Work concept Mumbai: Hope on the Horizon 7

8 Offices 2020 Mumbai Upcoming Locations in Mumbai Location SBD - Central SBD - BKC Western Suburbs Eastern Suburbs Navi Mumbai Hotspot Lower Parel, Worli Bandra Kurla Complex, Dharavi Goregaon, Malad Chembur, Vikhroli Vashi, Airoli, Mahape, Panvel, Belapur This map is not up to the scale and is for reference purposes only. It does not purport to be the true political representation for the city of Mumbai. 8 Mumbai: Hope on the Horizon

9 Upcoming Infrastructure in Mumbai ` Towards Pune Towards Goa Western Express Highway Eastern Express Highway Mumbai Pune Expressway Mumbai Goa Expressway Western Suburban Rail Central Suburban Rail Harbor Rail Eastern Freeway Santacruz Chembur LR JVLR Bandra Worli Sea-Link Existing Airport Ghodbunder Road Thane Panvel Road Thane Belapur Road Mono Rail Metro Line 1 Metro Line 2 This map is not up to the scale and is for reference purposes only. It does not purport to be the true political representation for the city of Mumbai. Starting the conversation: Focus on accessibility. For developers, office developments in good and centralised locations will continue to offer the best value. Prime spaces in the typical front office districts will offer lower occupational risk, but will come at a high price. Opportunities for value growth will come from refurbishing and retrofitting assets in these core areas. In the other business districts, success will depend on proximity to working population, good accessibility, infrastructure and amenities. Review the asset class and portfolio. Developers and investors must focus on new decentralised and mixed-use developments promoting healthy demand from both retail and residential sectors alongside the office sector. This enhances employee satisfaction, allowing for greater productivity. Concepts such as walk-to-work, alternate workplace strategies, etc. should be invoked. Mumbai: Hope on the Horizon 9

10 Offices 2020 Mumbai WINNING THE LOCATION DESIGN Buildings in Mumbai are getting old quickly. What factors will be decisive when it comes to relocation decisions? Mumbai s office buildings are continuously evolving to keep up with sister cities. Transformation is driven by both aesthetics (i.e. building quality) and innovation (i.e. new work practices). Considering Aesthetics - Changing building standards means that even buildings dating from ten years ago are well along the cycle to obsolescence. Clearly, multinationals are insisting on global standards for Mumbai - organised in business districts, with high-quality specs as well as excellent safety & security systems and buildings with higher degree of resiliency and sustainability. For instance, banks are unable to create modern datacenters within the older buildings which lack supporting electrical, mechanical and structural elements. And, importantly, they are able and willing to pay. Many have already moved; Pan India Grade A Office Stock 2013 Versus 2017 (Projected) 600 Expect more convenience stores at the base of office buildings. many more will relocate soon. Expect more convenience stores at the base of office buildings. Domestic companies tend to be smaller and generally owner-occupied. Their demands for space are lower, and they are more willing to tolerate being in mixed-use districts. Gradually, this will change. For example, over the next few years, we expect to see home-grown IT companies moving up the value chain and wishing to give their employees better working environments. 140 Mumbai Grade A Office Stock 2013 untill 2017 (Projected) Square Feet, Millions Square Feet, Millions F F 2014F 2015F 2016F 2017F Source: Real Estate Intelligence Service. Source: Real Estate Intelligence Service. 10 Mumbai: Hope on the Horizon

11 In the final analysis, however, Mumbai is like every other city. Relocation decisions will be based on CAPEX calculations, and they will most likely meet return thresholds when consolidation of business activities saves money. Office Innovation More iconic buildings (office status is important to Indian business people) Open offices & Alternative Workplace Strategies Common spaces Gyms, day care, and other amenities Clubs (particularly in campuses) Food courts Previous working practices have not been kind to offices. Some offices, particularly business process outsourcing (BPO) and call centre offices run a two-shift policy, and their offices are occupied often for over 18 hours a day. The wear and tear of the properties is therefore double, and, as a result, the building interiors are considerably worn out. Some firms have relocated simply because their offices had depleted and cannot keep up to support new technology and work styles. In the build-up to 2020, this trend is less likely to continue. Mumbai-based businesses are moving in the direction of the rest of the business community and seeing offices as places to get inspired, rather than simply places to work in. Multinationals are setting the bar high, and local businesses are follow suit. For example, Google s new Mumbai office which displays investment in corporate identity and employee-comfort, is a trending pattern for many companies. We can expect relocation decisions to be stimulated by a host of other tempting features. Long hours combined with longer travel time mean little conveniences such as buying food & groceries on the way home and eating home-cooked meals have become more prominent for the average Mumbaiker. Expect more convenience stores at the base of office buildings. In the final analysis, however, Mumbai is like every other city. Relocation decisions will be based on CAPEX calculations and these will most likely meet return thresholds when a consolidation of business activities saves money. When the capex does not rise, companies will stay put, most often by doing some value additions to the old office space through refits, which do not necessarily need capex approval. Start the conversation: Timing is everything. Plot your office relocation or lease renewal when office market supply is healthy. Committing early to gain first mover advantage in new buildings or taking over fitted spaces before they are reinstated by outgoing occupiers can also reap significant cost savings. Strong and timely portfolio strategy will ensure a comfortable timeline and smooth relocation process whilst minimising disruption and inconvenience for your staff. Asset Quality. Whilst costs are certainly the primary decision-making criteria, the other factors that would weigh heavily on occupiers decision are location, accessibility and quality of the asset. A developer or landlord has greater control over the asset quality than any other factors. In today s market, some tenants, who are occupying old buildings and paying inflated rentals: would be quite keen to relocate to a superior building with high-end specifications, quality, amenities, etc. Sweeten the deal. With an occupier base that is often happy not moving to avoid disturbance to business, relatively small investment in good property management will significantly improve occupier retention. Moreover, landlords should offer additional perks for large space take-up. Flexibility in terms of phasing, expansion/contraction rights or right of first refusals offer occupiers the freedom to grow or shrink according to their business requirements. Mumbai: Hope on the Horizon 11

12 Offices 2020 Mumbai EVOLVING WORKPLACES How will changes to workforce profile along with technology advancements impact Mumbai s office landscape? Mumbai office managers reacted to the global financial crisis like many of their global counterparts by increasing the office space density of space usage. Typically, desk density spaces moved from 1110 sq.ft per person to 85 sq.ft per person and in exceptional cases such as BPO s, right down to 50 sq.ft per person. The positive impacts of this innovation have shown varied results. In terms of impact on overall office space, it cannot be said that firms have downsized as a consequence. Meanwhile, closer contact is claimed to yield better communication and more ideation. However, companies are still in the process of assessing productivity gains. High quality, iconic and well-positioned workspaces are going to be a key attraction for companies to attract the best talent. Space allocations depend on occupier industry types. Consulting and investment banking sectors offer large cabins to senior management, whilst firms that do not require large attractive offices utilize space more efficiently. Some companies have started implementing the smart office concept in a big way. Establishing technology enablers such as Citrix VDI is the first step in such smart office initiatives aimed at cost optimisation. Alternative workplace strategies (AWS) have provided the largest savings, followed by flexible working hours and a larger amount of people working from home. The productivity of workforce has gone up, and businesses are happy investing back into inspiring offices for their staff demonstrating higher productivity. Nevertheless, our vision of the office has changed irreversibly. There is the sense that offices need to deliver real value from gathering employees together and making them commute long distances. 12 Mumbai: Hope on the Horizon

13 To get people thinking and creating, today s mantra is definitely collaborative space. Campuses, in particular, are stressing for better environments to produce better outputs. Of course, good salaries are still the employees main motivation, but progressive companies realise that an innovative office rather than a functional one can help in the war for talent. It is difficult to see this trend reversing over the next few years. Indian employees are confident about their future and wish to acquire what other employees across the globe share. High quality, iconic and well-positioned workspaces are going to be a key attraction for companies to attract the best talent. Mumbai office fit-outs are changing because of technological trends too. Fewer data servers will mean more flexibility in space utilisation and lighter building cores. Meanwhile, better telepresence means that some firms will choose to locate over several buildings, knowing that workers will be in close communication. However, one implication of technology will not be seen in Mumbai. Mobile work will not result in massive numbers of employees choosing to work from home. Living spaces are too small, and there are too many interruptions to make this a productive choice. Offices are here to stay! For elder workers, the issues are different, and the generation gap is clear for all to see. Mumbai senior managers fought for their private offices and see no reason why they should give them up. Status is a cultural phenomenon, and change towards flatter structures and privileges is slow. Working practices in Mumbai are clearly in transition, and hybrid environments will continue over the next 7 years. Until the oldest generation of managers has left the workforce, this pattern will persist, but is changing for good. The other change to note in the Mumbai workforce is the level of women empowerment. Happily, this feature brings improvement for all - more emphasis on work-life balance, less standardisation and more focus on communication. Start the conversation: Analyse your staff profile. A careful assessment of the way your staff works and the potential impact/pushback of new workplace practices and technologies will be crucial to guarantee optimal efficiency of your real estate portfolio. Working with developers and landlords to implement this change will be critical. We ve seen some of the major space-guzzlers such as Banks and IT companies influence developers to upgrade building specifications and amenities, thus bringing forth a new benchmark in the market, which other players would be keen to replicate. Invest in flexible office space that drives productivity. Flexible office space that offers the option of creating open, collaborative floor plates will be in the highest demand going forward. Although the impact of new technology and space utilisation trends won t be dramatic, investors and developers will still need to invest in stock that serves the basic flexibility, collaboration and technology needs. However, it is imperative to educate Occupiers, Investors and Developers alike on this paradigm shift and advantages of flexible office space, as well as how it can influence future absorption. Mumbai: Hope on the Horizon 13

14 Offices 2020 Mumbai RE-EXAMINING TENURE Are tenure generalisations fading as the office market enters a stage of flux? The general rule in the past has been that the office market in Mumbai is divided into two: 1 Multinational companies lease office space built by reputed developers. 2. Domestic companies buy from local investors. Even if this generalisation was true in the past, going forward, the marketplace will become less double-sided. So whilst it is true that strata-titled offices are owner-occupied, it is no longer true to say that family investors are just interested in purchases. Some are now saying that it is not a good investment sense to have money tied up in one semi-liquid asset, and that leasing will free capital and allow for regular cashflows. Looking forward, landlords will place great faith in establishing higher-quality partnerships, based around longer-term rental contracts and fairer rent reviews. 14 Mumbai: Hope on the Horizon

15 Share of Lease and Purchase Transaction in Total Recorded Transactions 100% 90% 19% 1 11% 7% 6% 11% 80% 70% Sale/Lease Transactions 60% 50% 40% 81% 86% 89% 93% 9 96% 89% 30% 20% 10% 0% 1H10 2H10 1H11 2H11 1H12 2H12 1H13 Lease Purchase Source: Real Estate Intelligence Service Meanwhile, multinationals are reappraising the case for leasing. The new international accounting standards will see rents placed on the balance sheet, and this will tip the balance for some towards outright purchase. Moreover, companies will increasingly see India as a long-term play and will purchase the asset to avoid the cycle of the rental market. Not all the tides will be in this direction. IBM and Accenture have just taken up spaces on long-term leases, deciding that flexibility in the face of uncertainty is a better policy than sinking capital. High vacancy rates in suburban locations will mean that companies in the IT-ITes sector and those setting up back-end offices, as well as MNCs contemplating consolidation have time at their disposal to take decisions. As vacancy rates are high, the power today is with the tenants. After the alarmingly low absorption of 2012 (down 35% than in 2011) Mumbai regained the lost ground in 2013 with 9.6% positive change in absorption over that in This could be attributed to the city s reaching out to a diverse occupier universe by constructing space suiting to various budgets. However, the scenario is changing, and current developments are promising to offer well-designed and efficient buildings in prominent office locations. These projects have already attracted interests from occupiers, and as their delivery nears up, the balance will even up towards landlords. Looking forward, landlords will place great faith in establishing higher-quality partnerships based on longer-term rental contracts and fairer rent reviews. Start the conversation: Influence the development agenda. Although most parts of the markets are inching towards being landlord-favourable in the horizon of the next 3-4 years, some emerging submarkets will see developers become more sensible to occupier requirements, e.g., Navi Mumbai as an emerging IT destination within Mumbai. This will create the opportunity to influence the development agenda and force a more favourable cost-benefit equation. Increasing the occupiers commitment. With many organisations seeing Mumbai as a long-term play, occupiers will be increasingly willing to sign longer leases. Developers will need to anticipate the occupiers needs at an early stage, be more responsive and offer a broad range of branding and flexibility in terms of early exit, scalability, space contraction, hard and soft options, etc. to deliver aligned developments. Mumbai: Hope on the Horizon 15

16 Offices 2020 Mumbai THE SUSTAINABILITY AGENDA Will the industry jump aboard the sustainability train? In Mumbai, the sustainability agenda has been driven by MNCs global policies, rather than led by the government. Although the LEED certification exists, it is voluntary, with no mandatory reporting, and as a consequence, as little as of Mumbai s office space is certified. This will change over the next 7 years. For example, government involvement is increasing, as seen by the move towards greener offices by Meanwhile, there is an initiative to bring in regulations for energy performance by Some companies might even take the step towards self-generation of electricity. There is also a policy towards more stringent environmental impact assessments for new builds above 20,000 sq ft i.e. regarding air conditioning and greywater use. Expect the private sector to continue to make improvements to their green credentials. For example, whilst green leases do not exist as such, some features of green leases will be incorporated. Retrofitting brown buildings into green buildings is extremely rare in Mumbai, with some multinationals having to move out to find more environmentally friendly properties. At the same time, these green buildings are more likely to be of prime quality, so the maxim of a green building is a quality building certainly applies to Mumbai office space. For landlords, green is good for marketing as well as reducing operational expenditure. By some reckoning, green spaces get leased three months more quickly than non-green and some evidence shows that premiums can be 2-3% higher. Expect more robust figures to emerge on these measures over the next 7 years, and for the pressure on private companies to become more environmental to ratchet up as a consequence. Unlike other markets where all new builds will be sustainable by 2020, anticipate more modest goals for Mumbai. However, up to 50% of the new offices could be sustainable. As for refits, the key upgrades will be made in energy conservation (which might be incentivised by the government). Don t expect the green agenda to render Mumbai s office stock obsolescent just yet. Start the conversation: Take a long(er)-term view. From a short-term, financial perspective, the value upside of investing in highly sustainable office space is hard to prove. However, looking ahead to 2020, the impact will be profound, ranging from reduced operational costs, improved staff recruitment, retention and productivity, as well as enhancing the organisational brand image. Future-proof your portfolio. Sustainability should be driven through the new Development Control Regulations. Investors and developers will then come under further pressure from new legislation, as well as stakeholder and occupier demands. Although, at present, there is no significant evidence of a widespread willingness to pay top dollar for highly sustainable office space, non-green buildings are likely to depreciate in value faster, which will potentially result in higher vacancy rates. Moreover, developers need to realise that green / sustainable buildings are more marketable and fetch richer dividends in the longer run both in terms of operations and leases. 16 Mumbai: Hope on the Horizon

17 OUTLOOK Will Mumbai fully reap growth opportunities towards 2020? India is more self-sustaining than any of the other BRIC economies. It s driven by its own consumption, not exports nor foreign investment, and therefore, resilient to externalities. Mumbai is a key entry point to this massive market. India s demographics are astonishing. It has been calculated that by 2050, India s workforce will be virtually as big as America s and China s combined. Before then, perhaps as early as 2030, India will be the world s third biggest economy. These are irresistible facts. International occupiers and investors will have to position themselves to take advantage of India s huge internal market; they have no choice. The question is when? The government has clearly stepped up the reforms. Passing the new Land Acquisition Bill and Real Estate Authority Bill has indeed been helpful in India s march towards absolute transparency and has been one step closer to achieving a robust real estate market. The hope is that foreign direct investment (FDI) will arrive again sooner, rather than later. And, the linked hope is that deregulation will accelerate this timetable. Deregulation in finance and retail could already do so much to signal where the government wants to take the country. The Hope vs. Frustration dilemma really is in the balance, so much so that occupiers and investors are preferring not to make any big decisions for now. What is certain is that by 2020, there will be increased clarity. The competitive threat of oriental and Indian cities will be more evident. The government s liberalising agenda will be better understood in one direction or the other. The economic and education story will show whether India is on the path to dragging millions out of poverty or not. Occupiers and investors will play wait and watch, but one fact is evident-whilst there can be varied perceptions about country - level risks, Mumbai remains the first port of call, and it does remain as the most favoured Indian city for the rest of the world. Key Opportunities Deregulation and anti-corruption measures Demographic dividend Portal to India s huge market Navi Mumbai development Younger workforce, more women talent Key Risks Infrastructure projects are not met Lack of coordination and vision by city agencies High building obsolescence and too many strata Overseas investors remain cautious Mumbai: Hope on the Horizon 17

18 Offices 2020 Mumbai Outlook Where is Mumbai headed??????????????????????????????????????????????? Strengths State-steered growth Future delivery of high quality office stock Development of, sector specific, regional office districts Weaknesses Over cautious land policy v demand Potential lack of office product in some locations Regional centres will take time to become attractive, vibrant micro locations Opportunities Attracting regional & global HQs Shifting to higher value economy Integration with Asian Economic Community Threats Competing gateway cities in the region Some political uncertainty Uncertain global & local economic outlook 18 Mumbai: Hope on the Horizon

19 Methodology The methodology behind this report is based on the a Grounded Theory approach developed by Barney Glaser and Anselm Strauss. The Grounded Theory method does not aim for a single-end truth, it is rather an evolutionary process to conceptualise into a useful format what is going on, by using empirical research from a variety of data sources. In essence, you look at the data and ask what is happening, rather than form hypothesis that you then try to disprove. In this case, this empirical research consisted of several steps culminating in a series of workshops with clients across six cities. First was the examination of our existing JLL research on the office markets to devise concepts areas or for further research. These areas were then discussed and refined into key areas through discussion with Asia Pacific research heads from some of the largest investment fund offices. The research heads were extremely keen to understand what occupiers want and how the leasing process can provide a long-term relationship for both parties. The key questions were then posed to clients. In each of the six cities, we invited three corporate occupier clients and three clients representing the development process and the landlord community to a workshop/ round-table discussion. These clients were joined by our JLL colleagues in each city, representing a wide variety of functions and included heads of leasing, transaction management, capital markets, property management, workplace strategy, facilities management and other senior management. The participants in each city spent several hours debating the questions and presenting their alternative views. This written report is a step along the way in the process of discovering a shared view by us and the clients about the future of offices in six very different cities in Asia Pacific. Acknowledgements Thank you to our thought leaders and the organisations that participated in the industry engagement process conducted during our Asia Pacific research project. If you would like to find out more or contribute your views, we would be delighted to hear from you. Please visit for more information. Clients: Bank of America JP Morgan Kotak Realty Fund Bennett Property Holdings Hindustan Construction Company Barclays Unilever K Raheja Corp Join the conversation and add your views by visiting Mumbai: Hope on the Horizon 19

20 About JLL JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in Its investment management business, LaSalle Investment Management, has $59.1 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit JLL has over 50 years of experience in Asia Pacific, with 34,000 employees operating in 92 offices in 16 countries across the region. The firm won 15 awards at the International Property Awards Asia Pacific in 2016 and was named number one real estate advisor in Asia at the 2015 Euromoney Real Estate Awards. About JLL India JLL is India s premier and largest professional services firm specializing in real estate. With an extensive geographic footprint across 11 cities (Ahmedabad, Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 8500, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, analytics, consultancy, transactions, project and development services, integrated facility management, property and asset management, sustainability, industrial, capital markets, residential, hotels, health care, senior living, education and retail advisory. The firm was awarded the Property Consultant of the Decade at the 10th CNBC-Awaaz Real Estate Awards 2015 and the Best Property Consultancy in India at the International Property Awards Asia Pacific For further information, please visit JLL office - Mumbai Level 7 Tower A Peninsula Business Park Senapati Bapat Marg Lower Parel Mumbai Tel Jones Lang LaSalle Property Consultants (India) Pvt Ltd All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.