Bengaluru Opportunities in Challenges November 2017
Preface While the challenges are great, so are the opportunities. Popularly known as the City of Millennials and driven by the significant growth of real estate due to the technology services-driven economy. Although the rapid urbanisation in the city outpaced its infrastructure growth, both the aforementioned factors catered to the development of existing residential and retail precincts and the emergence of new residential and retail precincts along the major roads of Bengaluru. Here s a report that dives deep into the Office, Retail and Residential Real Estate scenario of this dynamic city. Innovation and disruption being the game changer in the office market of Bangalore, technological advancements, automation and infrastructure challenges of rapid urbanization together are transforming the conventional business strategies of the office market. On the retail front, tech savvy Bengaluru is heavily adopting technology for superior shopping experience be in on the high streets, mall or ecommerce causing a transformation in the overall shopping pattern of the citizens of the city. The paper identifies and sheds light on a few upcoming trends in the Retail Real estate in this market. While the Residential Market struggles amid the prevailing uncertainties of Real Estate Act and Goods & Service Tax, the developers are putting in all it takes to comply with these changes while the buyers are adopting a wait and watch mode. Newer formats of affordable housing, co-living and student housing are gaining popularity and are on a rise. Read on to discover the various opportunities in challenges that lie in the beautiful city of Bengaluru. Bill Ford Ramesh Nair CEO & Country Head JLL, India
Young Bengaluru City of Millennials Students, technology professionals, consultants, young entrepreneurs, start-ups, pubs, breweries, fine dining restaurants, co-working, co-living and student housing all make Bengaluru a city of and for the millennial generation. About 50% of the population of Bengaluru is aged between 25 and 60 years old and about 40% are under 25 years old. Bengaluru is an innovation-oriented city and it has always welcomed change. Now, as the world is witnessing the fourth industrial revolution - the digital revolution, Bengaluru is also participating in this revolution. Companies in Bengaluru are working towards developing advanced technologies to stay ahead of the curve of this revolution and the new generation is contributing significantly to these disruptive innovations. Therefore, Bengaluru is always buzzing with tech-savvy youngsters who have migrated from different parts of the world to work here in world-class firms or start-ups, making it a culturally a cosmopolitan city. The city not only offers the new generation with many opportunities in terms of work but also in terms of entertainment. Population 11.6 Millions 1 50.2% Population between 25-60 years 2 1. Projected population for Bangalore urban as per report by Directorate of Economics and Statistics, Bangalore-2013 2. http://www.icmr.nic.in 3. Jones Lang LaSalle City Momentum Index -2017
World s Premium Technology Hub Bengaluru tops the JLL City Momentum Index (CMI) for the first time in 2017, driven by the significant growth of real estate due to the technology services-driven economy. In addition to this, the socio-economic momentum that relates to changes in city GDP, population, air passengers, corporate headquarters and FDI also contributed significantly to move Bengaluru to the top of the index. Bengaluru is already an established IT hub of India as it has the presence of the world s leading IT companies. In addition to this, it is also one of the leading start-up hubs of India with a total funding of more than USD 6,000 million between 2014 and 2016. Although the rapid urbanisation in the city outpaced its infrastructure growth, both the aforementioned factors catered to the development of existing residential and retail precincts and the emergence of new residential and retail precincts along the major roads of Bengaluru. 2015 2016 2017 1 London London Bengaluru 2 Nanjing Silicon Valley Ho Chi Minh City 3 Tianjin Dublin Silicon Valley 4 San Jose Bengaluru Shanghai 5 Beijing Boston Hyderabad 6 Shenzhen Shanghai London 7 Shanghai New York Austin 8 Ho Chi Minh City Sydney Hanoi 9 Boston Beijing Boston 10 Wuhan San Francisco Nairobi 11 San Francisco Nairobi Dubai 12 Chongqing Shenzhen Melbourne 13 Sydney Seattle Pune 14 Bengaluru Tokyo New York 15 Dubai Nanjing Dubai 14 4 Driven by Bengaluru s strong entrepreneurial growth with presence of international IT giants along with largest number of high-tech start-ups 1 World s premier technology hub driving strong real estate demand
Changing Landscape of Office Real Estate Flexibility and Innovation Flexibility in Leasing Office Space Bangalore s office market is on the cusp of change. Technological advancements, automation and the infrastructure challenges of rapid urbanisation together are transforming the conventional business strategies of the office market and bringing innovation and disruption. Moving ahead from the conventional market dynamics of a landlord or occupier market, the office market is today witnessing a large number of partnerships between developers, landlords and occupiers to overcome the challenges of the changes that the industry is going through. Occupiers are expecting more flexibility in terms of leasing spaces based on their near-term business requirements that can be expansion, consolidation or improving the efficiency of existing spaces. Developers in Bengaluru have been known to be very responsive to changes and emerging trends. As such, they are partnering with occupiers to support leasing requirements according to their business needs. Challenges Drive Innovation In addition to the flexibility needed in space requirements, many companies are focusing on improved working conditions and employee satisfaction. Companies are therefore working along with developers to meet these goals. Traffic congestion along the key IT corridors is a major challenge in Bengaluru and significantly affects the productivity of employees. The city is working on innovative solutions to face the traffic challenges along these IT corridors. While the initiatives of the city development and management authorities are mostly mid- to long-term, the developers and occupiers are chalking out plans to improve employee productivity and experience in the meantime. Developers who own and operate the IT parks in Bengaluru are providing various entry and exit points within the IT parks to ease traffic movement during peak hours. They also provide various amenities, such as healthcare, crèche, gymnasium, fine dining and entertainment options, within the IT parks so that employees can invite family and friends and spend time within the IT parks during peak traffic hours more productively. Fast Facts - Grade A Office Stock 103.5 Millions sq ft Vacancy 2.9% Average Rental Growth 5% Y-o-Y
Alternate Spaces and Emerging Locations Future of Workspaces Bengaluru is one of the key office markets of India given its technology-based economy. The city has more than 100 million sq ft of office stock with a vacancy rate of less than 5%. Bengaluru is well equipped with world-class IT parks to accommodate the business needs of large corporates. Bengaluru also has a fast growing start-up driven economy. Start-ups that comprise many small and medium-sized enterprises are transforming the urbanscape of workspace in the city. They have led to the emergence of what is called the Future of Workspaces coworking spaces and alternative workspaces. Coworking Stock 1.6% Millions sq ft Emerging Locations Bengaluru s key IT corridors are slowly becoming saturated. Most IT parks in the key sub-markets of the city have low vacancy levels in their existing stock and the upcoming stock has high pre-commitment, given the good demand Bengaluru witnesses. Rents in these sub-markets have also risen sharply by 5-10 % y-o-y over the last two years, given the limited availability of leasable office stock. As such, occupiers have limited options to expand or lease space in these sub-markets. The above parameters have led to the emergence of new office hubs in the city. Two locations that are growing at a fast pace are north Bengaluru along Bellary Road from Hebbal to Kempegowda International Airport and south Bengaluru along Sarjapur Road and Hosur Road. About 10 million sq ft of space is coming up in north Bengaluru and about 2 million sq ft of space is coming up in south Bengaluru in the next two years. Flexible lease options, location benefits and the benefits of a collaborative work environment are driving the demand for co-working spaces in Bengaluru. Many global and local co-working firms are offering spaces in Bengaluru. The city currently has about 1.6 million sq ft of operational co-working space. In addition to co-working spaces, a few cafés in Bengaluru offer seats to work with Wi-Fi connectivity on a daily or hourly rental basis. Demand Drivers Flexible lease options Location benefits Collaboration and Networking Bengaluru Zone Map BYATARAYANAPURA DASARAHALLI WEST EAST MAHADEVAPURA SOUTH RR NAGARA BOMMANAHALLI LEGENDS STATE BOUNDARY ZONE BOUNDARY
What is the New Shopping Trend? Superior Shopping Experience Tech savvy Bengaluru is heavily adopting technology for superior shopping experience be in on the high streets, mall or ecommerce. It has transformed the overall shopping patterns of the citizens of Bengaluru. Bengaluru s retail real estate is also witnessing a sea change due to changing demographics and lifestyle. A few upcoming trends in Bengaluru s retail real estate market are as follows: Happening High Streets Bangalore is a veritable democracy of retail. Every value-cluster finds a presence and the clusters are widening and deepening. Shifting Epicentre Bengaluru s shopping epicentre is fast moving from the traditional city centre high streets of Brigade Road, Commercial Street and MG Road to the new high streets of Indira Nagar, Koramangala and Jayanagar that are established residential locations. Distinct Character High streets in Bengaluru have their own distinct characteristics and cater to a specific target segment. For instance, Lavelle Road attracts high-net-worth individuals and the rich, offering niche and exclusive products, while Marathahalli has developed as a location for discount or factory outlets. The high street locations of Jayanagar and Malleshwaram continue to interest retailers in the women s apparel, gems and jewellery segments. Retaining the Pub Capital Status The food and beverages (F&B) industry is mainly driven by youth. Bengaluru is witnessing the rapid growth of quick serving restaurants and pubs. With the largest number of pubs in the country, Bengaluru is termed the pub capital of India. Bengaluru retained the status of pub capital by de-notifying the order of the Supreme Court of India to officially cease partial or complete operations of pubs, bars, clubs or any establishment that serve alcohol located within 500 metres of national and state highways. Bengaluru s key high streets - Brigade Road, MG Road and Church Street, which are home to the city s famous pubs and restaurants - came under the purview of this rule. As these places witness strong demand Koramangala s 60 Feet Road and contribute to the state s Replete with food joints - from the revenue, the state established classy fine dining destinations to a new rule over the denotified rule that exempts to street-side eateries. popular restaurants to small cafés pubs and bars within the city F&B accounts for more than 80% from the previous rule. This of retail space on the road, the clearly depicts the popularity highest across any high street of the pub culture in the city. location in Bengaluru. Indiranagar s 100 Feet Road This is a favoured high street destination for local, national and international F&B retailers. This road has gastropubs, micro-breweries, cafés, coffee shops, fast food chains and much more. More than 20 bars & pubs and 50+ food joints are present along a stretch of 2 km.
Malls as a Cultural Destination Malls as cultural destinations Malls are not only places to shop but are also social and cultural destinations. It is important that new and innovative experiences are regularly introduced to retain footfall. Mall operators have also realised that F&B is the key attraction and therefore they are getting the right eatery brands that cater to specific taste buds, which will shape the quality of their visitors. Malls within integrated developments The mall part of integrated developments or mixed-use developments is known to witness increased footfall. Both UB City on Vittal Mallya Road and Orion Mall at Malleshwaram are integrated along with office and hotel projects and they witness good footfall. VR Mall on Whitefield Main Road has both hotel and co-working space alongside its retail stores and restaurants. 10.8% 10 Stock Vacancy million sq ft of malls Generation Phygital Bengaluru is experiencing the growth of phygital or omnichannel retailing. Traditional brands are not limiting themselves to the bricksand-mortar format of stores but are also selling through digital platforms to reach more customers. In addition, brands are selling through a digital platform as well as opening their bricks-and-mortar experience stores in key high streets of the city. This is although, countrywide, we are witnessing a good volume of retail space take up, with brands such as Pepperfry, Urban Ladder, LensKart and Caratlane taking up space in Bengaluru. These stores are for supporting customers with a touch and feel experience of the product and facilitating the process of ordering online. This trend is expanding the customer base of the online retail brands. Omnichannel Retail Makes shopping an effortless experience Better pricing, as the cost of bricks-andmortar space is not loaded on the product Suits the busy lifestyle of the tech-savvy population of Bengaluru Access to the best of two worlds More choices to offer
Trends in the Residential Market Key Trends Uncertainty prevails - The Bangalore real estate sector is grappling amid the prevailing uncertainty brought in by the implementation of Real Estate (Regulation and Development) Act (RERA) and Goods and Services Tax (GST). Developers are working hard to comply with these policy changes while prospective buyers are adopting a wait and watch mode. Therefore, both the demand and supply are becoming affected in Bengaluru. Infrastructure propels launches - Infrastructure developments such as new roads, flyovers and the metro rail are opening up peripheral locations having good access to the IT hubs in the city for residential development. More than 9,000 units were launched in the peripheral locations of Bengaluru in the first half of 2017. Best preforming sub-markets - East Bengaluru, which caters to the housing requirements of employees working in Whitefield and along the Outer Ring Road, is currently the best performing market of the city with a sales rate of 8-10%. This sub-market has the greatest advantage of all housing segments with reasonable market prices ranging from INR 2,500 to INR 8000 per sq ft. South Bengaluru follows east Bengaluru as the second best performing market, again due to its close proximity to the IT clusters. Private Equity (PE) funding testing waters - Most funding for residential real estate at the moment is by debt refinancing. However, a few PE investors are planning to invest in residential projects in Bengaluru. These PE funds are cautious and are only opting for projects by reputable developers. Rising Straits Capital, Piramal Enterprises Ltd and Ivanhoé Cambridge are a few investors who are planning to invest at the equity level in residential properties. Affordable Housing - Affordable housing witnessed good demand in peripheral locations due to the availability of low-cost land, FSI relaxation and gaining industry status, etc. - In Bengaluru, affordable housing development was limited around the proposed peripheral ring road. However, the Bangalore Development Authority and the State Government of Karnataka are identifying land within prominent locations such as Whitefield, Gunjur, Kengeri and Hoskote and developing affordable housing projects. - After the affordable housing sector gained the status of an industry, private developers started developing such projects in proximity to industrial areas such as Doddabalapur, Anekal and Attibele. Co-Living & Student Housing - Bengaluru is fast growing as a hub for co-living and student housing projects due to the presence of a large number of students and young professionals. - These are gaining popularity, as they provide well-maintained, high-quality shared facilities at a reasonable cost. - Most of the co-living spaces in Bengaluru are in the central parts of the city and in locations such as Indira Nagar and Koramangala.
Opportunities in Challenges Bengaluru as a city finds opportunities in challenges. Despite the infrastructure challenges faced by the city due to rapid urbanisation, the developers, companies and city authorities are developing innovative solutions to face these problems. Developers and companies are partnering to create an improved employee experience. BMRCL is adding new metro trains along the routes with large numbers of commuters during peak hours. They have also started operating short loop services between Kempegowda Metro Interchange and RV Road and Indiranagar stations to help commuters to travel faster between busy stations. The busy lifestyles of tech-savvy professionals are paving the way for omnichannel retailing. The increased cost of office space is leading to the fast development of co-working spaces and alternative workspaces for SMEs. The increased housing cost in core areas of the city is leading to the development of co-living and shared living spaces for students and young professionals in the city. City authorities are working towards the development of affordable housing projects within the city. Private developers are exploring their opportunities in the affordable housing segment. Every new challenge is an opportunity for innovating new solutions in Bengaluru. Therefore, as the city s population is estimated to be more than 14 million by 2021 and office stock is likely to be more than 135 million sq ft, Bengaluru is likely to see many more innovations in urban development and real estate.
About JLL JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 companyh, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At the end of the first quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 78,000. As of March 31, 2017, LaSalle Investment Management had $58.0 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com JLL has over 50 years of experience in Asia Pacific, with 36,800 employees operating in 95 offices in 16 countries across the region. The firm won the World s Best and Best in Asia Pacific International Property Consultancy at the International Property Awards in 2016 and was named number one real estate investment advisory firm in Asia Pacific for the sixth consecutive year by Real Capital Analytics and ranked among Fortune Magazine s World s Most Admired Companies list third year in a row. www.ap.jll.com 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 9,300 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 2016-17. For further information, please visit www.jll.co.in Authors Trivita Roy Associate Director Research and REIS trivita.roy@ap.jll.com Sushma Vemuri Senior Executive Research and REIS sushma.vemuri@ap.jll.com Kartheek Babu Senior Executive Research and REIS Kartheek.babu@ap.jll.com For More Information About Research Ashutosh Limaye Head, Research and REIS +91 98211 07054 ashutosh.limaye@ap.jll.com jll.co.in Jones Lang LaSalle 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.