Instant offices: demand of a new age

With the geographical boundaries blurring, expanding businesses in new locations is being recognised as the best possible way to growth. However, setting up a new office in a new location is expensive and carries the risk of financial wastage in case the business has to be wound up.

To counter this, professionals and large organisations seeking a market presence, or looking for business expansion in another city or in India, are opting for serviced offices.

Compared to the conventional leased office space, a serviced office does not require furnishing or lease agreement and provides an ideal business environment in terms of immediacy, flexibility, location and cost.

Regardless of the fact that the company stays on for two years or for two months, the executives just walk in, fill out the agreement papers and start their business.

The offices come with complete fit outs, in spaces as small as 400 sq ft to one that accommodates 50 to 300 staff. Secretarial support,

Internet services, security and total EPBX support are available on demand. Most offer conference and meeting rooms for presentations and even virtual offices with complete internet and secretarial support, helping companies focus on critical issues like developing business, meeting clients, clinching deals and conducting business from day one.

The firms pay for services on 'pay as you use' basis. Additional space can be allocated at a short notice and companies have the option of renting additional space for a day to carry out brainstorming sessions, client meetings, staff interviews and other activities, saving significantly on overheads and capital outflow.

Says Anshuman Magazine, South Asia CMD, CB Richard Ellis, “The concept has taken off in the last couple of years as more business enterprises are coming up.

It is specially useful for small start-ups that want to start out with a small staff, or those who are absolutely at the initial stage of business, still looking out for clients and contracts. A serviced office space is the preferred way of working for people who need to stay in the location for two to three months and return to their base location.”

The concept of serviced offices or business centres has been around in the US and Europe for more than 15 years. In India too, business centres have been around for more than ten years, but it is only now that multinational companies have begun to set up such office spaces in India with trained staff and international standard services.

“MNCs specialising in serviced office spaces bring along the expertise of offering top class spaces, and services with leased Internet lines for speedy uninterrupted connectivity,” says Magazine. In cities like New York, serviced office spaces account for almost 10 per cent of the total office space. In India, the inventory is still small.

The other reason for such offices being in demand for the past few years, is the high rentals of office premises, say experts. Many MNCs looking to set up an office in the country, like to keep their expenditure to a minimum.

Meenal Sinha, GM, Servcorp, a multinational company which has tied up with K Raheja Corp to offer serviced office space says, “A typical serviced office of 1500 sq. ft., complete with fit-outs, staff support and technical personnel, communication system, connectivity and incidental, costs not more than Rs 2.9 lakh per month.

A traditional office works out at Rs 6.37 lakh for a month. Moreover the lease agreement is usually done on a yearly basis and winding up at a short notice becomes difficult.”

Anshuman Malik, vice president, Incube Business Centre says, “Setting up office in India for a person who is new to the country could be difficult, expensive and time consuming. Apart from the challenges of moving staff, files, furniture, other facilities such as telephone, internet, boardroom facilities could take time to set up and the actual business may take months to start.”

Malik adds, “Since the last decade, the revolution in information technologies and liberalisation of economy have created enormous opportunities for knowledge-based businesses as well as challenges for planners to create new jobs now needed the world over. The business centre helps tackle the obstacles faced by entrepreneurs and facilitates the venture creation process.”

Meenal Sinha, says, “This is an era of speed and efficient delivery. Businesses have to minimise gestation period and concentrate on their core area of expertise. A fully functional office with premium fit-out, classy reception areas, superior IT connectivity in a good location eliminates starting hiccups.

State-of-the-art technology like hot-desking allows online access to all the services anywhere and anytime, while dedicated leased internet lines ensure speedy download and communications. These redefine the method of doing business professionally with a local business number and dedicated trained receptionist to manage all calls.”

Sean Morgan, MD, Avanta,a serviced office located in a plush area, finds it hassle free. “India is a preferred destination, but its working ways and cultural fabric can be difficult to understand in the beginning. Moreover the recent terror attacks have created a kind of uncertainty.

Despite these, you need a plush address and an office in an instant with minimum wastage. A serviced office is the answer as you can actually get complete confidentiality of your business, high level of security, secretarial and administrative support on a shared basis. Winding up is easy.”

The clients feel this works well when the need is to deliver from day one. Dr. Kant Singh, of International Business Wales a UK based government agency says, “I save 30 per cent of my time by operating from a serviced office as most of my needs like internet, fax, photocopiers, couriers and dispatch are fulfilled in an efficient and professional manner. I get a total professional atmosphere to work from.”

Shardul Padhye of Top Source Infotech, who manages a sales and marketing office here, operates from a virtual serviced office effortlessly without courting hassles of maintaining equipment and office support.

“I work with a three-member team and all of us travel. One seat in the serviced office is enough to take care of our needs when we require a physical space. The rest are managed through virtual office which provides good connectivity, through hot-desk and leased internet line,” he says.

Surely, in these times of uncertainty, serviced offices are the best option. Not surprisingly, many companies are setting up such offices in India. After all, it pays to serve their residents who run their businesses from these premises.


(via Economic Times)

Crisis to hit business districts in India

India's well-established commercial business districts (CBDs) are likely to face vacancies this year, as the first impact of the global recessionary economy is being felt by the financial and other organisations, according to a real estate consultancy firm.

"We will also see a reversal of the trend witnessed over the past two expansionary decades where large organisations moved from owned to leased assets. Given the drop in prices and availability of choice properties, this will be a good time for surviving organisations to announce their new leadership positions through trophy purchases," Jones Lang LaSalle Meghraj (JLLM) said in a report Predictions for Indian real estate 2009.

The firm believes CBD vacancy rate, if triggered, can add significant pressure to the upcoming and newly developed premises in upcoming front-office districts such as Lower Parle in Mumbai and Nehru Place in Delhi.

While the sentiment in the US and Europe towards outsourcing is positive in the long term, the active decision-taking for expansion by business process outsourcings is totally suspended for the moment.

"We do not expect this to change in 2009. Hence, the pressure on upcoming and announced projects – especially special economic zones (SEZs) – will continue this year," the report said.

In 2009, IT SEZs will also experience further pressure from the fact that the software technology parks' concessions may be extended for another couple of years. While these concessions are important for IT companies' survival during the recession, they will adversely impact SEZ developments.

Moreover, the peripheral areas of metros as well as the tier II/III cities will need to compete with the central or secondary business districts for the same set of talents, thus dissolving the clear segmentation that was emerging and separating various micro-markets over the past couple of expansionary years. Newly developed or announced projects are especially going to suffer and may see continued vacancy.

"The year will also see practices in the real estate business become more organised and professional, as they did in the late 1990s and early 2000s with the introduction of foreign institutions, foreign money and the creation of government-supported large development formats. A similar professional approach may reach warehousing land acquisitions."

Residential properties

Much of the previously anticipated demand for 2009 will not see the light of day due to the confluence of various factors. According to JLLM, developers have only now begun to come down on their rates, and a lot depends on how many of them will follow suit in the coming year. The much-awaited drop in interest rates for home loans has happened, but not at a level sufficient to pull the residential sector out of the doldrums entirely.

In response to the considerable demand for such formats, the company anticipates more national players to launch affordable housing projects this year. However, since different cities will have different costs for land and construction of such homes, developers will have to define "affordable housing" on a city level.

"We expect that at least 20 per cent of the players in residential real estate will begin to think on a portfolio rather than project level. Developers have been pricing their projects according to their expected profit margins vis-à-vis the cost of land in different locations. Buyers are not prepared to consider the initial and appreciated cost of land as a valid component of the price."

According to the report, "portfolio level" means at least one fifth of the developers will now cross subsidise their construction costs internally and sell their project at prevailing selling rates.

Two scenarios

In terms of sales volumes and market recovery, there are two distinct scenarios: buyers who were waiting for rates to drop to levels they could afford will make their moves when rates fall into their budget range. Secondly, buyers will continue to wait for the time that delivers the best rates – a point that may come and go without them being aware of it.


Decisive time

The year 2009 will see a good number of capital markets transactions, but the period from March to December will be a "decisive" time.

All business sectors have been hit by the economic meltdown, and many will generate liquidity by divesting non-core assets such as real estate. Types of enquiries are likely to be in the higher risk adjusted return segment with greenfield opportunities seeing limited interest as most investors will be investing in Asia with chasing liquidity and not higher return. Residential projects in the middle-income segment are likely to see renewed interest with interest rates declining this year.

"In 2009, we will also see the decisive arrival of sale-and-lease-back deals, in which owners currently occupying their properties will sell them and continue as lease tenants. Corporates have to address liquidity issues in their core businesses and are now eager to unlock the value of their non-core assets," JLLM said.

The biggest buyers would be foreign direct investment-compliant India-dedicated funds, domestic funds, high net worth individuals and corporate houses.


Dynamics

The year will be guided by dynamics of two contradictory forces: recession trend guided by capital market slowdown, decrease in demand, caution in cost and spending and governmental and social efforts to regain growth momentum. "For the first three to six months the impact of point recession trend will be more significant while in the later half of 2009 support to growth from government and global community will be more visible," JLLM said.

(via Business Times)

Commercial space at reasonable rate is important for growth

Do you know the rentals of some of the commercial properties in Mumbai and Delhi are more than even upmarket areas of New York? A few may take pride thinking atleast we are ahead of America in one area! However, there is nothing to boast about it. In reality, high rentals are likely to adversely affect the Indian economy.

Consider the rentals of up-market areas like Bandra Kurla complex, Nariman Point in Mumbai and Connaught Place in Delhi. The current rentals in these places are as high as Rs 350 to 400 per sq ft. Whereas, the rate of similar space in America is not more than Rs 250 per sq ft. These facts came to the light in a recently published report by Ficci and real-estate consultant, Knight Frank.

It's not only the retail sector which is feeling the pinch of high rentals, BPO are also complaining about the same. Pranay Vakil of Knight Frank said, high rentals are putting heavy burden on BPO companies not only in big cities, but also in tier-two and tier-three cities.

Endorsing the views of Vakil, spokesman of the BPO Asso ciation of India Deepak Kapoor said, "The large number of global BPO companies started their operations in India mainly for two reasons. The first reason was that they could easily get large number of english speaking employees at a cheaper cost as compared to what they pay them in the any other part of the world. And the other major reason was that the cost of operation in India was much lower than any other country. When the companies started their operations some seven years back, rentals of commercial space - which constitutes major portion of the total cost of operations - were reasonable. It was then far cheaper than any place in America, England or Singapore. But unfortunately, today the scenario has changed."

Chairman of Aditya groups, Uma Aggarwal said both BPO and retail companies require huge space to start their operations. And in present scenario, the going is really tough for them. The rentals have gone up by almost 300% in areas like Gurgaon, which had emerged as the hub for BPO business. The rental in these area has gone up from around Rs 25 per sq ft per month in 2000-01 to Rs 100 per sq ft per month at present.

What's worse is that there is no space available for the next two years. Most of the areas which are under construction and would be ready for delivery in the next two years, have already been leased out.

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