U.S. real estate companies pick up on the vast opportunities in this growing market.
commercial real estate companies have had India on the line for several
years. CB Richard Ellis, Cushman & Wakefield, Jones Lang LaSalle, and
Colliers International partnered with local commercial real estate
professionals to set up Indian offices in the late 1990s along with their first
corporate clients to help with offshore location decisions. CBRE now has
offices in six Indian cities, employing more than 600 people. JLL has five
offices and about 130 employees.
In the last two years, a second wave of U.S. real estate companies has booked passage to
Along with tenant reps CRESA Partners and DTZ-Staubach, Dallas-based Mohr Partners,
the Midwest company Exceed International, and
Chicago-based Equis Corp. have established Indian offices or partnered with
local companies. Last fall Trammell Crow Co. bought a 30 percent stake in a
well-known Indian company that will operate under the name Trammell Crow
Meghraj and manage 26 million square feet.
As with many corporate real estate companies, Trammell
Crow made the jump because India
is where its client base is operating. "Some of our best and deepest
client relationships in outsourcing and brokerage have facilities and growth
plans for India,"
says Robert Sulentic, Trammell Crow's chairman and chief executive officer.
But even real estate companies that don't have corporate
clients see the writing on the wall. The upshot of offshoring may be that, if
you're not in India
today, you may be there in two years or five years because the opportunities
are just too good to pass up.
For example, Exceed International is a real estate
development company based in Antioch, Ill., about 25 miles north of Chicago. On its Web site, along with
renderings of condominium and mixed-use development projects in Fox Lake, Ill., and Zion, Ill., are renderings of Bascon
Park and Kuppu Retail Arcade in Chennai, India,
the first of six Indian construction projects for which Exceed holds contracts.
"Exceed is near completion of the commercial projects in Chennai and
anticipates delivery of more than 15 million sf of commercial and residential
space by second-quarter 2007," says Charles V. Miles, Exceed's president
and chief executive officer, who went to India in February 2004 and recruited
an initial team of 25 employees. "Today Exceed is firmly established in
the south Indian market and employs nearly 400 experts in various fields such as
project management, development, architecture, engineering, construction,
government relations, finance, and technology."
Exceed also plans to partner with companies to develop
residential and mixed-use projects in India. The company is building to U.S. design and quality standards and using U.S.
construction techniques to attract big players to its projects. "The
untapped mass retail market is perfectly positioned for exponential growth and
Exceed is well poised to deliver a 'soup-to-nuts' solution to international
retailers," Miles says.
Markets on the Make
Demand from offshore companies anxious to set up Indian
offices has pushed the country's economic growth rate past 7 percent
off an office development and leasing boom. Currently most U.S. real
estate firms in India focus on tenant representation for the U.S. and
European offshore markets. "CRESA India represents mostly
software companies, biotech, banks, insurance, pharmaceuticals, and
some of the
large Indian corporations," says Askok Kumar, managing director of
Partners' Mumbai office. DTZ-Staubach's clientele "primarily consists
of U.S. and European-based IT/IT-enabled services
and major financial services companies looking to establish a
presence," says Ankur Srivastava, managing director for DTZ-Staubach in
"Most [corporate tenants] are seeking grade A properties in the
established Indian outsourcing destinations, which include Bangalore,
Delhi, Chennai, Mumbai, Pune, and Hyderabad." Many of the companies
in insular business parks "that provide a social infrastructure of
restaurants, banks, and transportation," Srivastava adds.
Of course India's
steel and glass corporate campuses stand in stark contrast to the country's
ever-present poverty, overcrowded streets, and crumbling infrastructure.
Congested roads, housing shortages, and an unreliable power grid are some of
the challenges that face offshore space users.
But tapping into the labor pool is probably the greatest
challenge, and offshore companies rely heavily on experienced Indian commercial
real estate professionals for guidance. "The identification of strategic
locations with the right talent pool is the key factor in the success of a new
entrant," Kumar says. For example, a ready supply of software development
and engineering graduates has turned Bangalore,
once a sleepy retirement town, into India's
Silicon Valley, now home to U.S.
companies such as Cisco, IBM, Motorola, Hewlett-Packard, Microsoft, Oracle, and
Google. "The most preferred [Bangalore]
location for IT is near the suburbs, since that is where the labor pool
is," Srivastava says.
and Mumbai attract financial services and other call center operators, drawn by
an accent-neutral labor force. American Express, Fidelity Investments,
Prudential, British Airways, Morgan Stanley, and Citibank are located in these
markets, Srivastava says. Hyderabad is
IT prominence. ITES business led the real estate demand in Hyderabad, according to Cushman & Wakefield's
2Q05 report. Oracle, Microsoft, and Dell have facilities there. IT/ITES
companies also are moving to Chennai, which has a large number of trained
financial professionals. Standard Chartered, Citibank, World Bank, and EDS are
in Chennai. Pune is an up-and-coming location attracting telecom, IT/ITES,
manufacturing, and financial services companies.
Since offshoring is a large volume business, the biggest
advantage for U.S.
companies is the ability to build up a scalable operation at a fraction of the
cost, Srivastava says. "We have seen some of the large offshoring firms
build up a portfolio of almost 1 million sf in less than 24 months."
But rising real estate costs are pushing companies into
smaller cities, Kumar says. "Existing IT/ITES and telecom tenants are
showing interest in locating in tier-two and tier-three cities. These are being
explored by companies that are striving to achieve further efficiency in the
Srivastava agrees, noting that secondary cities offer lower
costs and significant government subsidies and concessions. "The state
governments of Chandigarh [both a state and city], West Bengal (Kolkata),
Kerala (Thiruvanathapuram, Kochi), Madhya Pradesh (Bhopal, Indore), Andhra
Pradesh (Vizag), Karnataka (Mangalore), Gujarat (Ahmedabad, Gandhinagar) are
aggressively positioning themselves to capture this second wave and are willing
to offer substantial incentives to potential occupiers," he says.
Srivastava sees significant opportunities for U.S. commercial real estate companies in India in the
next decade. "India
is expected to add another two million T/ITES workers to its labor pool in the
next four to five years. At an average of 100 sf per person, the real estate
demand from the IT sector alone will be a staggering 150 to 200 million
sf," he says. "The average grade A absorption in the top six Indian
cities is expected to be 25 million sf this year. Leveraged internal rates of
return on tenanted properties could be in the range of 18 percent, and in the
case of greenfield
properties, this IRR number could be in excess of 25 percent."
is moving toward a position where a company will not be there despite the real
estate, but because the real estate offering is an attraction itself,"
Kumar adds. "More corporate developers are entering into development and
property management, and returns on commercial properties are in the range of
10 percent to 12 percent per year. The entry of foreign operators into the
infrastructure, commercial, and retail sectors will go along with paving the
way for the development of real estate mutual funds and investment
Srivastava also thinks that U.S. capital funding will improve
"the quality of real estate product. There will be more instances of
build-to-suits where a U.S.
tenant will pair up with a U.S.
investor to secure a cost-effective solution to their property needs."
Despite the spectacular growth of the last four years, "The real
estate business is in its infancy in India," Kumar says. "The
supply of grade A office and retail only emerged in the last seven to nine
years, and central management of premium real estate started accelerating only
in the last couple of years," he adds. "There is still a shortage of
good trained real estate professionals. The quality of space and service
standards along with improvement in urban infrastructure are critical for