Tag: office spaces

Dubai’s ‘golden visas’ are helping the city overcome the global office plunge

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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At the height of the global pandemic, as Dubai faced an exodus of expatriates and mounting competition from neighboring business hubs, the government opened up. That decision is now helping the city dodge the commercial real estate crisis rippling across the globe.

The United Arab Emirates — of which Dubai is a part — started to break away from a decades-old economic model that prevails across the oil-rich region, linking residency to employment. Officials widened the eligibility net for long-term ‘golden’ visas, abolished a requirement for companies to have a majority local partner, switched to a Monday-Friday working week and made it legal for unmarried couples to live together.

Policymakers wanted to help Dubai shed its reputation of being a transient city by attracting expatriates and encouraging some of them to set up businesses. That seems to have paid off. 

In response to questions from Bloomberg, authorities released data for last year, revealing the scale of the turnaround. The city had 411,802 active business licenses in 2023. That’s a 30% jump from 2022 levels and a 75% increase from 2021.  

Earlier this month, Dubai International Financial Centre said the number of entities registered there rose 26% in 2023 from a year earlier to over 5,500. The free-zone now employs about 41,600 people — a 15% increase.

The impact is most evident in the emirate’s commercial real estate market. Occupancy is at record highs in contrast to slumping demand in other cities including London and New York. In Dubai’s financial district, known as DIFC, office space is scarce and rents are still rising. 

The business hub’s most prominent tower is up for sale, and could be valued at as much as $1.5 billion. That property in DIFC is among Brookfield’s best performing assets globally at a time when other assets — including in Los Angeles and London’s Canary Wharf — have been hit by falling occupancy.

“The market is quite divorced from the trends we see across the world,”said Prathyusha Gurrapu, head of research and advisory at the property firm Cushman & Wakefield Core. “While a lot of western markets are still working on a hybrid or work from home model, here there is a surge in demand and almost everyone is back in the office.”

Economic Freedom

To be sure, a number of external factors also boosted arrivals. Bankers relocated from Asia to escape lockdowns, while wealthy Russians moved in to shield assets after their country invaded Ukraine in 2022. Crypto investors flooded in, alongside rich Indians looking for second homes, as well as young job seekers from Europe and the wider Middle East. 

Government reforms enabled some of the new arrivals to set up businesses.

“When taken holistically, the changes made are significant,” said Ryan Bohl, a senior Middle East and North Africa analyst at risk intelligence consultancy Rane Network. Saudi Arabia and Qatar “are both going to be pressured to try to find ways to liberalize their economies in ways that make sense for themselves, if they want to compete with the economic freedom Dubai gives businesses,” he said.

Apart from the commercial property boom, signs of the influx are visible elsewhere. Waiting lists for schools and clubs run long, while key roads are routinely jammed. The government has announced a $5 billion public transit project and policymakers predict Dubai’s population will surge to 5.8 million in 2040 from over 3.5 million currently.

Residential property prices are closing in on records, despite mortgage rates hovering at the highest levels in two decades. Average annual rents for villas have surged to nearly $88,500. Last year, buyers queued up for $5 million homes and one developer sold houses worth $844 million in hours. At the high end, sales of homes worth $25 million or more doubled in 2023. 

One year at a time 

The new rules have upended Dubai’s real estate market in other ways. End users now account for 44% of property purchases, compared with 29% in 2019, according to property broker Betterhomes. 

Londoner Jake El-Rasoul is one the thousands of expatriates looking to buy a home in Dubai. Since moving to the city a decade ago, the 40-year old has lived year-to-year, aware that he’d likely need to to leave if he lost his job. 

But in May 2022, encouraged by the government’s visa reforms, he opened a financial advisory firm. “I sort of saw an opportunity and thought it was a good time to set up my own business,” he said. “It’s not so daunting anymore and the flexibility around visas is definitely a big factor.”

Policymakers across the Middle East see knowledge-based industries as the future and have been plowing oil wealth into high-tech sectors. To attract the right people for such jobs, UAE authorities recognized the importance of providing long-term horizons and predictability — the bedrock of decision making for executives. Golden visas ensure that to a degree, even though citizenship remains largely off the table. 

While Saudi Arabia’s also announced initiatives to make Riyadh a more attractive destination, challenges remain. One big question is whether it’s ready from an infrastructure, housing, lifestyle and administrative standpoint for an influx of foreign white-collar workers and their families. Equally, a question mark hangs over whether people will abandon the relatively freer and more cosmopolitan Dubai to move there.

El-Rasoul, for his part, plans to make Dubai his home for at least the next decade. “It feels like there’s more people coming here to live for a long time,” he said. “Dubai has changed in that respect.”

Oil Wealth

Part of the draw is the the Middle East’s immense oil wealth — the UAE capital, Abu Dhabi, alone is home to state funds that control $1.5 trillion in assets. That’s prompted a number of multinational firms to consider expanding in the region. 

Nathan Gatland, director at Open Hub, says his firm now helps sets up about 80 companies a month on average —  up from about 25 trade licenses per month a year earlier. That’s despite the UAE’s decision to introduce corporate tax. 

“I thought the corporate tax would have a negative effect but we’ve seen bigger companies come here due to the market potential,” Gatland said. “When they move staff here, it opens up a whole new market where a lot of high net worth individuals are moving to.”

Still, limitations remain. Among them: what happens when residents stop working? Dubai needs to establish retirement programs and health insurance plans to allow residents to retire in the city, according to Renee McGowan, CEO of India, Middle East and Africa at Marsh McLennan.

Dubai’s diminishing tax-free status may also hinder its ability to lure more foreigners. In addition to corporation tax, the UAE introduced value added taxes in 2018 on top of the slew of government fees on services in a city that already ranks among the world’s most expensive. 

“Dubai and the UAE in general are facing clashing imperatives of finding ways to develop comparative advantage to keep people in the country on the one hand, while rationalizing their budgets by increasing taxes and broadening the tax base,” Rane Network’s Bohl said. 

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Hybrid working merely a transient and temporary trend, says DLF

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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All the world over, companies are engaged in active conversations about the future of working — a large part of this revolves around hybrid workplace models — but India’s largest commercial real estate operator, DLF, believes the good old office building isn’t going away anytime soon.

In fact, the company’s managing director of the rental business, Sriram Khattar told CNBC-TV18 in an exclusive chat, that the two-year-old migration to hybrid working since the start of the COVID-19 pandemic is merely “a transient and temporary” one, born out of companies experimentation owing to uncertainty over the pandemic itself.

“We believe that the trend (hybrid working) in the last two-and-a-half years was a transient and temporary one, and it came at a time when tenants were trying to figure out how the pandemic would pan out in the long term,” said Khattar, “We don’t see this trend carrying on for long if there is no strong COVID wave.”

‘No CEO has set a definition for hybrid working’

The bigger problem with hybrid working according to the DLF boss though, is that there is still no set definition of what it entails. “Hybrid working emerged out of a strong, adverse psychological reaction to COVID, which was unprecedented since nobody knew where we were going,” he said, “But as I talk to CEOs of large, multinational companies, none of them have frozen plans of what hybrid working is going to be. Everybody has a different definition of what hybrid is.”

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Khattar’s observations come even as DLF has decided to invest Rs 5,000 crore in a new commercial development in Chennai, to develop 27 acres of Grade-A office space. The project, DLF Downtown, will also see Chennai turn into DLF’s second-largest commercial market, after Gurugram.

According to Khattar, DLF’s commercial buildings will see occupancy in excess of 90 percent by the first half of FY 23, as India makes a “quicker than estimated” comeback to the office. The projection, he added, was born out of the pent-up demand for commercial space that could show up this year.

“Other than the initial thrust in 2021 where weaker tenants wanted to cut down on office spaces by 5 to 8 percent — and they did — I see the trend reversing completely,” Khattar said, “Now, some of the larger international companies with stronger backbones want to come back and take spaces.”

‘Prefer larger tenants to co-working space occupiers’

It isn’t just hybrid working that DLF is sceptical about. Khattar hinted that the company isn’t exactly gung-ho about expanding their portfolio of shared workspaces or building hub-and-spoke workspaces, both of which have emerged as strong post-COVID trends.

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“Among DLF’s commercial buildings and IT parks, only around 5 to 6 percent are shared workspaces,” said Khattar, “We are open to increasing the market share of our shared workspaces in our market share if the need arises, however, we also need to protect our portfolio against the risk of smaller co-working space occupiers not meeting their obligations to us.”

He added that DLF would like to continue attracting larger tenants and keep a close tab on the quality of their enterprise clients, most of whom require large-format offices as opposed to co-working spaces. As a result, the company’s shared workspace share within its own commercial portfolio is likely to stay at 5-6 percent.

These observations come even as a recent Anarock-CII study predicted that shared working spaces would see their pan-India market share go up from 3 percent to 4.2 percent over the next 12 months, while registering a growth of 15 to 20 percent.

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Khattar said there was no clear market in favour of DLF building Grade-A office spaces in tier-2 towns either. “We don’t see the market demanding that we building more IT offices in tier-2 towns,” he said, “We have not seen large, international companies adopt a hub-and-spoke workplace model in smaller towns or demand A-grade office spaces in tier-2 towns.”

Given the ongoing post-COVID recovery in commercial real estate, the DLF Rental boss said he expects vacancies at commercial properties to sink to single digits over the next six months, accompanied by a slight increase in rents, which have been flat over the last couple of years.

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Employee headcount increases in Delhi-NCR offices, not so much in Mumbai yet: Report

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Almost a year ago employers cutting across industries in India instructed their employees to work from home due to the novel coronavirus that wreaked havoc not just here but all over the world. However, now with the vaccination drive underway and the situation comparatively under control, office spaces have started filling up. The Economic Times reported that top office-space operators and co-working companies were reporting an occupancy ranging between 10-35 percent across India in what could be described as the beginning of a post-COVID era.

It said that IT hubs such as Bengaluru and Hyderabad still have a large number of employees working from home and hence they were behind the national average of people now operating from their offices. But offices in the national capital region (NCR) are showing increased numbers.

The rising numbers in the NCR could also be attributed to the continuous fall in covid infections. Delhi, for example, recorded only 145 infections and two deaths on Sunday. Authorities have hinted that they are open to lifting more restrictions in the weeks to follow.

The case is not the same with Mumbai, though. The maximum city, according to the report, is still showing low numbers because employers continue to discourage workers from using the local transport, partly due to the recent rise in cases. The city’s office occupancy is still hovering around 10-15 percent, says the report. Maharashtra on Monday recorded over 5,200 cases. As part of its measures to contain the spread of the virus, the state government has also restricted the employee headcount in offices at 30 percent.

SK Sayal, whole-time director and CEO, Bharti Realty Limited told ET the last two months had seen an increase in occupancy. The office operators also say that the numbers are expected to rise significantly once the vaccination drive gathers steam.

According to the report, the spaces were occupied in the range of 15-20 percent until December. They have, however, shown marked increases since then, going up to 20-25 percent in some cases.

Neetish Sarda, the founder of Smartworks, says the occupancy in Hyderabad and Bengaluru was yet to reach 25 percent but in Kolkata and Delhi-NCR it had already gone past 35 percent, it reported.

Most companies, including MNCs, experts say will start focussing on increasing headcount in offices from March onwards. A lot also depends on where the pandemic is headed in the country. India, last week, recorded over 100,000 cases in a week after five weeks. A new wave of the virus in the country could once again delay the return of employees to offices.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Office space leasing to pick up in 2021; may be at par with last 10 year average

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian commercial real estate office market saw record leasing in CY19 with 42 million sq. ft of annual net absorption. The office market has been in an upcycle over CY14-19 with rising rentals, falling vacancies, consolidation among developers and the emergence of REITs.

However, the evolving global situation owing to the COVID-19 pandemic has spoiled the party in the year 2020 and the net absorption during the year is expected to remain around 25 million sq. ft as against the last 10 years’ average of 30-31 million sq ft.

Sector experts believe that the office space leasing activity may pick up in 2021 and is likely to be at par with the 10-year average i.e. 30-31 msf.

“While net absorption has taken a beating in Q2-Q3CY20 owing to lockdowns across India’s Tier I cities, a number of pre-leasing deals being signed augurs well for a pick-up in occupancy levels from CY21. We expect office leasing to see a pick up from Q2CY21 (April 2021 onwards) and expect 28 msf of net absorption in CY21E,” ICICI Securities said in a report.

Further, the pandemic–induced lockdown has also delayed the supply of office spaces as around 149 msf of offices were expected to hit the market over CY20-23E.

“This number has already shrunk 30 percent to 102 msf as of September 2020 with around 30 msf expected to be completed in CY20E. Hence, we now expect 30 msf of completions each in CY20E and CY21E. With both demand and supply expected to fall 30-40 percent over CY20-21E, we believe that vacancies may not see a steep increase from current pan-India levels of 13 percent,” ICICI Securities said.

Meanwhile, the co-working segment is expected to gain in medium to long-term, although there will be a pain for the next one year, analysts said.

The average co-working space has doubled to 70,000 sq ft in 2020 from 35,000 sq ft in 2019. Enterprises are taking up space in co-working setup and these coworking players are now catering not just to freelancers and startups but to larger enterprises and hence they are taking up bigger spaces, according to JLL India.

“Future of co-working will be bright. Today a lot of companies and enterprises want flexibility. Lot of corporates don’t want to make capital expenditure on office interiors and they are increasingly opting for co-working spaces. The future is going to be very good for co-working players. However, there will be a lot of pain the next one year but if they survive this period then the future is really great for them,” said Ramesh Nair, Country Head and CEO, JLL India at a webinar organized by Workplace Trends India.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Realty players remain bullish on commercial space despite COVID crisis

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Despite the coronavirus pandemic hitting demand for office spaces significantly, realty players are bullish about the segment and expect at least 28-30 million sq ft commercial space absorption this year. According to the industry experts, the COVID-19 pandemic has impacted the overall business sentiment but the demand for office space will revive as the country slowly comes out of the lockdown.

They estimated a 28-30 million sq ft of absorption in 2020, which is nearly 40 per cent lower than the record absorption of over 49 million sq ft in 2019. “There will be a demand bounce back Currently, things are moving slow but may be next year, we will see the momentum picking up,” Mindspace Business Parks REIT CEO Vinod Rohira said during a virtual real estate summit organised by CII.

RMZ Corporate Chairman Raj Menda said the demand will come back once the government opens up international travel as the capital intensive decisions of investing in commercial space come from the headoffice. JLL Country Head and CEO Ramesh Nair said data privacy continues to be a big worry while working from home. Echoing similar views, Embassy Office Parks CEO Mike Holland said issue of business continuity, safety, security and governance will drive the demand for office space. The industry experts, however, noted that only 10-15 per cent of the workforce in offices have returned so far.

Credai National President Satish Magar noted that once the COVID-19 curve flattens, people will want to come back to offices to work. Lodha Group MD and CEO Abhishek Lodha said that supported by government policy and low interest rates, India’s housing, office and logistics markets will see significant growth in the years to go.

The experts are also expecting consolidation in the commercial space as financing will continue to be a challenge with banks still being reluctant to fund. “In such a situation, private equity will play a major role in providing funds. Also, we will see a lot of consolidation in the sector,” Prestige Office Ventures CEO Juggy Marwaha said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Office space leasing drops in H1 to 10-year low; demand in top-8 cities falls 37%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Gross leasing of office space during the January-June period fell 37 per cent to 172 lakh sq ft, the lowest in the past 10 years, across eight major cities as corporates deferred their expansion plans because of the COVID-19 pandemic, according to a report by Knight Frank India.

Releasing the report, ‘India Real Estate: H1 2020’, through video press conference, Knight Frank India said the leasing fell 1 per cent to 146 lakh sq ft in January-March and 79 per cent in April-June to 26 lakh sq ft.

“The office segment in the top-eight cities witnessed a historic decline in terms of both transactions and new completions,” the report said. The demand from the co-working segment fell almost 40 per cent.

New supply of office space fell 27 per cent to 173 lakh sq ft during the January-June period of this calendar year.

Despite the low volume of transaction and supply, the weighted average rental for the eight cities reported a growth of 4 per cent year-on-year in the first half of 2020 to Rs 83 per sq ft per month.

Knight Frank India Chairman and Managing Director Shishir Baijal said, “With the economic uncertainties creating significant headwinds, we expect the office space take-up to remain cautious.”

Most occupiers would hesitate in committing to expansion in the current market scenario, and delay their leasing decisions, he said.

“For the office market, it will be a wait and watch till a more permanent solution to this pandemic is found,” Baijal said.

Rajani Sinha, chief economist and national director (research), Knight Frank, said, “After recording robust growth in the past few years, office market in the second quarter of 2020 has got hit by the COVID-19 crisis.”

“While the office supply fell in this period due to the prolonged lockdown, leasing activities also took a hit as corporates deferred their expansion plans. The vacancy levels have increased, making the market more tenant friendly,” she said.

According to the data for the first half of 2020, the gross leasing of office space declined in Pune to 20 lakh sq ft in January-June 2020 from 38 lakh sq ft in the corresponding period of the last year.

The demand fell 45 per cent in Delhi-NCR to 21 lakh sq ft from 38 lakh sq ft.

Hyderabad witnessed 43 per cent drop in office space leasing to 22 lakh sq ft from 38 lakh sq ft, while Bengaluru saw a 42 per cent dip to 48 lakh sq ft from 83 lakh sq ft.

The gross absorption of office space in Chennai stood at 13 lakh sq ft in the first half of this calendar year, a 28 per cent fall from 19 lakh sq ft in the year-ago period.

The demand declined 17 per cent in Mumbai to 39 lakh sq ft from 46 lakh sq ft.

In both Kolkata and Ahmedabad, the leasing of office space decreased to around 5 lakh sq ft in the first six months of 2020 from 6 lakh sq ft in the corresponding period of last year.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow