The Muttha Group, established in 1996, has made significant contributions towards shaping Pune through their innovative design and infrastructure. The Muttha Group has enlisted Tishman Speyer, one of the leading names in the real estate industry, as developers, leasing managers and property managers for their new project called Broadway Tech Park located in Pimpri Chinchwad Municipal Corporation (PCMC) district. Broadway Tech Park will be designed primarily as a commercial office space for IT/ITES and Finance tenants (85-90% of total development). This project has certain aspects, primarily location, design and amenities provided, that act as its key to success in the designated market.
The IT sector has increased its contribution to India's GDP from 1.2% in 1998 to 7.7% in 2017, and has displayed sustained growth till date. This tenant type is currently shifting base from Mumbai and Bangalore to Pune to tap into the highly educated and skilled workforce of the city. This trend has made Pune and its adjacent areas prime real estate due to its good infrastructure and connectivity coupled with relatively abundant and low-cost office real estate as compared to cities like Mumbai and Bangalore. Therefore, Broadway Tech Park, located in Peripheral Business District (PBD) west, possesses a tremendous locational advantage as PBD West is a rapidly upcoming area for IT/ITES activity. PBD West offers commercial real estate at low rental rates (Rs. 40-55 psft) hereby leading to high absorption.
Technology Parks have become increasingly popular as they allow companies in the same or relevant fields to cluster, network and collaborate by providing amenities and spaces that increase work efficiency. Broadway Tech Park will, therefore, contain space for food and beverage provisions, an incubator/marketing building, a primary school/day care facility, a retail strip, a fitness center and a co-living hotel space. These components make Broadway Tech Park a prime location for the target tenants, by providing a holistic range of supporting facilities coupled with stellar infrastructure and design.
The following paragraphs primarily elaborate the locational advantage (market analysis), possible risks & the project's competitive edge, and marketing strategies.
1.2 Industry summary:
The real estate sector enjoys a prominent global presence. In India, the real estate sector is only second to agriculture in terms of employment generation and is projected to grow by nearly 30% in the next ten years. This sector consists of four primary sub-sectors, namely housing, retail, hospitality, and commercial. Growth in this sector has moved concurrently with growth in the corporate sectors, leading to increased office space demand in urban and semi-urban areas.
Currently, the construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. In addition to this, India is presently ranked number 9 out of 55 international markets in the Global House Price Index, jumping up from number 22. This has led to increased prices, primarily in the residential sub sector.
There has been a rise in the number of real estate deals in India due to policy changes and initiatives such as RERA, Smart City Initiative, Housing for All by 2020, etc. which have led to greater market transparency. In addition to policy reforms, factors such as rapid urbanization, rising household income and the development of affordable and nuclear housing have contributed significantly to steady demand and growth in the real estate sector. This trend is expected to continue in the future, leading to tremendous growth in the Indian real estate industry.
By 2020, more than 70% of India's GDP is expected to be generated by urban areas. By then, the Indian real estate market is expected to be valued at US $180 billion, absorbing nearly 40-45 million square feet to uphold these predictions, with the housing sub sector contributing a substantial 11% to Indian GDP. The Indian real estate industry will receive greater NRI investment in the future with Bangalore as the favored location followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun. The other three sub sectors- retail, hospitality and commercial- are also expected to grow greatly to provide the necessary infrastructure to support the country's growing needs and economy.
Recently, industries like IT/ITES, Retail, consulting and E-commerce have accounted for high demands for office space. This generated a surge of 25 per cent in office space demand year-on-year in Q1 2018 leading to an absorption of 11.4 million sq. ft. in that period, which was a pleasant surprise as the results for Q1 are usually subdued. The IT industry governs a large share of 32% in this absorption, with other segments like BFSI (19%), engineering & manufacturing (17%) and consulting (8%) also contributing to the increasing demand for office space. In 2017, India placed 19th in a pool of 73 countries in terms of attracting foreign capital into its real estate market. As the attraction towards the commercial sector grew, private equity inflows in office and IT/ITES real estate grew 150% between 2014 and 2017. Private Equity Investments amounted to Rs. 16,530 crore (US $2.56 billion) in Q1 2018, a 15% year-on-year increase. Following in this trend, private equity investments in the Indian real estate market are expected to reach US $100 billion by 2026 due to investments mainly in tier 1 and tier 2 cities.
Following the trend of previous quarters, office space leased or sold consists primarily of small and medium sized units; Small size transactions (less than 10,000 sq. ft.) were responsible for 45% of all transactions while 43% came from medium sized ones. Large sized transactions (greater than 100,000 sq. ft.) occurred mainly in Bengaluru, Gurgaon, Mumbai and Hyderabad.
As American companies continue to infiltrate the Indian market in search of skilled yet cheap labor and relatively low-priced office space, the Indian real estate market sees a growing demand for Grade A office space as these companies seek to maintain certain standards across their global locations. These companies occupy about 45% of Grade A office space, constituting 35% of all office space absorption. Big American companies that have leased office space in India are Microsoft, IBM, CBRE, JP Morgan, Wells Fargo, Blackstone and Cognizant. The Securities and Exchange Board of India (SEBI) approved the Real Estate Investment Trust (REIT) platform and this will aid investors in investing in the Indian market, hereby creating a contingency worth Rs 1.25 trillion (US$ 19.65 billion) in the coming years.
In the light of increasingly globalization and rising consumer awareness, real estate developers have moved away from traditional development practices. In order to meet the growing demand in the Indian real estate market, developers are investing in centralized processes to source material and to organize labor by hiring skilled professionals in the fields of project management, architecture and engineering. This allows them to manage multiple projects in different cities simultaneously without compromising on quality.
2.0 Company Summary:
This section elaborates Tishman Speyer's role in developing Broadway Tech Park and their expertise in various areas of a project's life-cycle (design, construction, development, leasing and property management).
2.1 Scope of Work:
Tishman Speyer will design, develop, lease and operate the Broadway Integrated tech Park on behalf of the owner Broadway LLP Ltd. Broadway LLP is promoted by the Muttha Group of Pune.
Tishman Speyer (“TS”) is one of the leading owners, developers, operators and fund managers of first-class real estate worldwide. Founded in 1978, Tishman Speyer is active across the United States, Europe, Latin America and Asia, building and managing premier office, residential and retail space in 29 key global markets for industry-leading tenants. The firm has acquired, developed and operated a portfolio of over 166 million square feet with a total value of approximately US $87 billion spread over 403 assets. Tishman Speyer currently has projects at different stages of development in Boston, Brasília, Frankfurt, Gurgaon, Hyderabad, Los Angeles, New York City, Paris, Rio de Janeiro, San Francisco, São Paulo, Shanghai, Shenzhen and Washington, DC. The firm also operates portfolios of prominent office property portfolios in Berlin, Chicago and London.
The firm is vertically integrated, converting opportunity into value through expertise in every aspect of global real estate, from design and project development, to leasing and management of completed properties.
In India, Tishman Speyer has developed and currently operates the Waverock IT Park in Hyderabad (Telangana). Waverock is a 2.5 million square feet IT campus with marquee tenants that include Apple, DBS, TCS and Accenture. They also served as Development Manager for a 1.5 Million square feet Financial Services campus in Bangalore. They currently have a project in Gurgaon in pre development stages. This is a commercial development that will offer 1 million square feet of Class A office place when completed.
2.2 Tishman Value proposition:
Our goal is clear and consistent across the globe—to create exceptional spaces that meet the space requirements of modern, world-class tenants while adding value and driving returns. As designers for this project, Tishman Speyer aims to deliver quality. Our skilled design and construction professionals have a well-established track record in overseeing the design and construction of high-quality projects globally. This ensures that our projects remain both on time and on budget for demanding end-users. Our team's extensive experience enables them to create sustainable, creative, state-of-the-art solutions for new developments and building refurbishments.
Serving the role of development managers for the Broadway Integrated Tech Park, we focus on leveraging our long-standing presence in key markets throughout the world and the skills our development specialists possess from decades of hands-on experience, intimate local market knowledge and an extensive network of relationships with investment and real estate professionals, property owners and civic and community leaders. Tishman Speyer's in-house development professionals carefully manage each element of the due diligence process to increase the likelihood of the successful development of a new property at an attractive price.
In addition to this, Tishman Speyer is a world leader in the management and operation of first-class real estate. Each of our properties is treated as a stand-alone business and has its own team of in-house property management experts. This approach ensures a focus on creating value and maximizing long-term profitability. It also brings countless benefits, whether in the form of superior operational and maintenance standards, or more broadly in the form of savings from our globally negotiated procurement contracts. Tishman's property management specialists oversee all aspects of our buildings' operations, including engineering, security, fire safety and maintenance.
Furthermore, our in-house leasing professionals understand markets and tenants in a myriad of ways that organizations that outsource this critical function cannot. In each of our markets, our on-the-ground leasing teams speak with tenants, their brokers, leasing agents and even other real estate operators, gathering real-time market knowledge to develop forward-looking projections that are invaluable to us and our partners. Tenants' needs vary by market, as do brokers', and these needs often change over time. By having our own eyes and ears in so many parts of the world, we are able to track the pulse of each particular market, enhancing our understanding of the forces driving value equation in those markets. This knowledge affords us the ability not only to create greater value in the properties we own around the world, but also to accurately evaluate and underwrite new investments. Combined with Tishman Speyer's Global Corporate Outreach program, which leverages long-standing relationships with multinational tenants that are expanding operations around the world, our leasing team's efforts have resulted in new sources of investment, including off-market transactions, as well as several development and redevelopment transactions.
3.0 Market Analysis Summary:
3.1 Industry Context:
This sub-section analyses the target audience, surrounding infrastructure and growth prospects in the development location (Tathawade, PCMC) and adjacent areas (Pune and Hinjewadi).
3.1.1. Pune City Profile:
Pune is the second largest city in the State of Maharashtra – located in western India. Pune is an industrial, automobile and engineering hub and home to large companies such as Mahindra & Mahindra, TATA Motors, Bajaj, JCB, Emcure Pharma, Honeywell, Hyundai, John Deere, L'Oreal, Bridgestone, Volkswagen, Daimler Chrysler, Mercedes Benz, Philips, Forbes Marshall, GE India Pvt Ltd. etc. In recent years, Pune has also become a primary attraction for the IT / ITES industry largely due to availability of skilled manpower and excellent infrastructure in addition to its establishment as a manufacturing hub.
Pune ranked number 3 on JLL's City Momentum Index Short Term Momentum Rankings as one of the fastest growing urban economies and real estate markets in the Asia Pacific, making it one of the top destinations for “global capital, commerce and innovation”.
Pune has a well established infrastructure network offering rail, air and road connectivity with new proposed initiatives such as the metro, Bus Rapid Transit System, ring road and an airport underway.
Key micro markets within Pune are: Central business district (CBD), Secondary business district, East (SBD East), Secondary business district, West (SBD West), Peripheral business district, East (PBD East), and Peripheral business district, West (PBD West).
3.1.2 PCMC Area Master Plan:
Pimpri Chinchwad Municipal Corporation (PCMC) is both known and celebrated for its advanced and sustainable approach to real estate development. This area is adjacent to Pune City and includes PBD West, where our development site is located, and Hinjewadi, which has become a popular location for IT and BFSI tenants recently. PCMC uses a Master Plan to guide real estate development in the area to ensure systematic urbanization. PCMC's planned approach to real estate development makes it an attractive market after Pune for future growth and its well planned urbanization could assist the region to thrive even more than Pune itself, making it the city of the future.
PCMC expects to reach its full potential over the next few years according to its PCMC 2025 plan. The municipal corporation expects to change the landscape of the area into a vista of large industrial units, IT Parks, hotels, shopping and entertainment plazas, educational institutes and healthcare facilities. This development is expected to be supported by infrastructural development including massive public parks and gardens, and crisscrossed with multi-lane roads and flyovers alongside advanced public transportation systems consisting of scientifically designed BRT-based public transport system spanning 130 km across 14 routes in PCMC. This system uses 4-lane wide, exclusive roads with grade separators that will reduce the dependence on private transport to promote public transportation. This development will assist in smoother traffic flow, fewer road blocks and hereby contribute significantly to lower pollution levels and a healthier environment. In order to ensure uninterrupted development of these plans, PCMC has sourced funding by establishing an Urban Transportation Fund.
Elaborative road plans are already underway, with a Ring Road currently on the drawing board which is expected to regulate the enormous vehicular traffic the real estate development (residential and commercial) is expected to generate. PCMC has already surpassed its target for the 2017-2018 financial year for collections from building permissions by 10%. This reflects the booming real estate sector in the area.
With this city-level planning and development, PCMC will become a leading location for investment and commercial activity, hereby significantly enhancing the value of Broadway Tech Park in the near future.
3.1.3 Commercial Market Profile (PBD West):
Pune has continued to show a strong momentum in leasing into the second quarter of 2018 with a net absorption of 0.5 million square feet which is a 51% increase compared to previous quarters. The Hinjewadi district in PBD west contributed 34% to this absorption. The main industries driving this growth are: BSFI and IT. Overall vacancy for Grade A office space fell to 8.5% as compared to 9.1% in Q1 2018. However, rental rates in PBD west fell by 4% as new supply offers lower rental rates. These statistics portray the sustained demand for quality office space in the area where our subject property is located.
A study by Cushman and Wakefield in Q2 2018 shows the key statistics for all micro markets in Pune.
As portrayed by these statistics, PBD west is a fast-growing sub market with high leasing activity and planned construction. As this area offers low rentals and good connectivity to the main city, it is on the path to become a primary location for business activities.
Major contributing factors for the growth being:
Perception of Pune being a progressive state by investors and developers;
The better quality of real estate on offer in PBD West. The low cost of quality real estate, of both commercial and residential, as compared to CBD;
Availability of large office spaces of international quality construction for the MNC's and corporate sector.
Availability of International quality residential developments in all typologies viz. Integrated complexes, apartments, villas, plotted development, condominiums etc.
Proximity to the airport and railway station.
Pune offers excellent connectivity to many cities like Mumbai, Bangalore and Goa.
Pune is known for its great weather all year round
The subject property is located in Tathawade, in PBD west under the PCMC region. This is a rapidly upcoming location for the IT/ITES industry due to its extremely close proximity to Hinjewadi which also lies in the PCMC district.
Hinjewadi, located on the western corridor of the city has evolved as a key peripheral commercial (IT/ITES) destination in the city driven by the immense IT/ITES growth. The strategic location of the micro-market supplemented by its proximity to Mumbai-Pune Expressway and the Mumbai- Bengaluru Highway has accelerated the development activities. Hinjewadi hosts the 100 acre International Biotech Park (IBP), a joint venture between MIDC and Chatterjee Group's TCG Urban Infrastructure Holding India Ltd.
The Rajiv Gandhi Infotech Park promoted/developed by MIDC (Maharashtra Industrial Development Corporation), which commenced in 2004 with Phase-I and opened up the market for commercial (Information Technology / Information Technology enabled Services) space was the first significant peripheral development in the western corridor of Pune. Phase- II & III of the project was operational in 2006.
The Rajiv Gandhi Infotech Park at Hinjewadi houses IT/ITES companies such as IBM India, Accenture, Atos, Idea Cellular, KPIT Cummins, Tata Technologies, Infosys, Wipro, Tata Consultancy Services, Geometric Limited, Tech Mahindra, Cognizant Technology Solutions, Persistent Systems, Mindtree and Synechron Technologies.
The real estate market dynamics of Hinjewadi is also about to visualize a similar trend to the eastern corridor with the upcoming private parks / SEZ by developers such as Embassy Property Developments Limited, Panchshil Realty, Paranjape Schemes.
4.0 Strategic and Implementation Summary:
This section discusses the various risks involved with developing the Broadway Tech Park, a SWOT analysis judging its positive and negative aspects and finally, a sub-section that elaborates the measures taken to mitigate certain risks in order to increase the project's competitiveness in the target market.
4.1 Risk Analysis:
Real estate development is regarded as one of the riskiest business activities. Creation of developed real estate sites includes many speculative aspects and the anticipation of future market trends, hereby making uncertainty and risk inherent definers of this sector. Therefore, successful ventures are products of supplying the right amount at the right place and time and at the right price. The profit from development projects is a function of evaluating cost against value. Since real estate development is a highly complex and integrated task, it is crucial to deploy a team with different expertise and skill sets to co-ordinate the cross-disciplinary tasks in order to create a successful project. Furthermore, there are several stakeholders in the process- primarily the developer, prospective tenants and investors. Other important stakeholders include local authorities and the local economy and residents. Real Estate developers must also keep in mind considerable changes in their environment and those driven by social, urban-planning, macro-economic, political, legal, environmental, regulatory and technological factors. Developers must possess a great sense of awareness of regarding all the aforementioned factors in order to mitigate risk and increase management efficiency. It is crucial to analyze the broad framework of possible risk-inducing factors by evaluating each stakeholder individually as well as their interrelation and interactions. Primary risk-creating areas are examined as follows:
Market and Competitive Risk:
An upcoming IT Park project by the Panchil group is expected to be completed before the Broadway Integrated Tech Park project. The project by Panchil group is to be located in very close proximity to Broadway Tech Park in Tathawade. This, in turn, will draw market attention to this area hereby acting as an IT/ITES market driver. Any delays or problems with the Panchil project will reflect on the client's project in a negative manner by reducing the area's reputation as the upcoming IT/ITES location.
Increasing Digitization in the IT sector: This puts the Indian software workforce at risk since only 10% of them are skilled enough to succeed at tasks involve data analytics, machine learning and artificial intelligence. This trend has the potential to disrupt the IT sector by significantly reducing skilled labor demand. This, in turn, will affect the amount of commercial office space demanded by IT tenants.
Effect on BFSI and BPO sectors as they employ machines, algorithms through AI and Blockchain functions to accomplish tasks leading to reduced requirement for labor in IT sector, directly affecting office space demand.
The concept of “co-working” started in 1995 with the first workspace being shared in New York. Since then, this small trend has evolved into a widespread movement worldwide. Now in 2018, there are over 37,000 co-working spaces across the globe. This movement has made its significant mark due to changes in the way the population lives and works. Co-working spaces are beneficial to the landlord as they bring down vacancy rates in the commercial space as well as associated fees. Not implementing and leveraging an adaptable design, balance of space between areas, blend of occupants, services and amenities, and location could work against a tech park developer in the face of this rising trend.
Legal and Regulatory Risks:
General Elections 2019: Although elections do not have a direct impact on the real estate market, they do affect the outlooks of firms and investors. A change in the ruling party may also result in State elections which leaves the market in limbo while the dust settles. Firms and investors will require some concrete evidence of a strengthening economy, infrastructure investment, etc. to regain confidence in the real estate market post-elections. This might lead to delays in occupying office space, hereby impacting revenue streams.
Trump Administration: New bills by the Trump government look to make outsourcing more difficult and expensive in light of increasing protectionist sentiments by this government that calls for hiring locals. India is the world's largest outsourcing country in regards to the IT sector; it serves 70% of the market which amounts to a significant amount of $130 billion. In India, the IT sector and related businesses like Business Process Outsourcing (BPO) provide employment to nearly 10 million workers. Not only has this led to India's economic growth but has also helped the country make its mark in the global economy. Trump's promise to bring jobs back to the U.S. threatens to reduce immigration and off-shoring policies which will hinder outsourcing of work and potentially disrupt India's large IT sector since the US market accounts for 50% of India's IT exports. This will directly impact the demand for IT office spaces.
Construction: There could potentially be problems with the construction loan as well as issues related to pricing, design, quality and possible delays.
Duration: Duration is a consequence of the occurrence of other potential risks. It has an impact on interest costs. Also, a delay in moving in by marquee tenants can lead to adverse market circumstances for the project.
Earthquake: The subject property area lies in Earthquake Zone 3 as per the India Meteorological Department. Pune is located very close to a seismically active zone near Koyna Dam (about 100km south of Pune). An earthquake measuring 3.6 on the Richter scale hit areas surrounding Koyna Dam on January 21, 2018. This could lead to possible risks related to construction, structure stability, etc. hereby impacting office space uptake.
Land disturbances: Large projects reshape the topography by removing indigenous vegetation, hereby leaving the soil vulnerable to erosion. Eroded soil becomes airborne, this dust affects the air quality inside the building and also dirties the facade and interiors. This dust may also enter waterways and pollute them, hereby deteriorating water quality. In seasons of heavy rainfall, serious problems resulting from landslides, unstable slopes, water logging, etc.
Risks related to Supporting Infrastructure:
Since the subject property is located away from the main city of Pune, individuals working at office spaces at the Broadway Tech Park would prefer settling in close proximity. The lack of supporting infrastructure like housing, schools, hospitals, public transportation network, etc will hinder people from taking jobs in this area and directly impact space uptake.
Tenant Mix Risk:
Although net absorption of Grade A developments increased by 8% in Q1 2018, IT-BPM sector's share in total leasing fell to 37% in Q1 2018 compared to 46% in Q1 2017. This fall occurred due to protectionist policies in countries such as US, advent of robotics and Artificial intelligence (AI), and lower IT spending in 2018. This led to a fall in leased area by IT companies, they leased smaller office areas (average of 23,000 sf in Q1 2018 compared to 35,000 sf in Q1 2017). In Q1 2018, the Healthcare and Pharmaceutical sector replaced BFSI to emerge as the second highest lessor of office space. While IT-BPM continues to occupy first place, its growth is declining. A uniform tenant mix is susceptible to economic downturns, which in turn affects rental income. A diverse tenant mix ensures revenue stability while marketing the property as an inclusive space for different industries, hereby supporting the rapidly rising co-working culture.
To summarize, the following table draws a distinction between systematic risk in general market development, which cannot be influenced, and unsystematic risk in micro economic determinants, which can be directly influenced to some degree.
4.2 SWOT Analysis:
4.3 Competitive Edge:
Although risks are an inherent part of any business venture, Muttha group, alongside Tishman Speyer, has taken certain measures during the master planning and design stages of Phase 1 of the project to mitigate several of the aforementioned risks to garner a competitive edge.
Tishman Speyer's team includes highly qualified individuals with different expertise and skill sets. This team will successfully co-ordinate the cross-disciplinary tasks in order to create a successful project.
Tishman Speyer will recruit a team to carry out the landscape profiling for the area in order to analyze the natural topography, soil and water patterns. This will assist in master planning and designing the buildings and supporting infrastructure without causing major disruptions to the landscape. The entire project is expected have a substantial sustainability quotient as it will be LEED Gold certified with on or off-site solar panels generating electricity. Furthermore, the building design will include provisions to mitigate earthquake damage to the property and the tenants by using structural engineering competency and by providing the required refuge spaces and evacuation precautions. This will, hereby, assist in mitigating several environmental risks while reducing operational costs and increasing the project's long-term sustainability (LEED Gold and solar panels).
The floor plates will be designed to allow multi-tenant division, this will allow the commercial office space to be treated as co-working spaces if required by clients.
The site will offer a large number of supporting services to make the Broadway a holistic Technology Park. There will be provisions for the following:
Food & Beverage (F&B)
Primary School/Day Care
Indoor stadium/Gym/Fitness Center/Sports Fields
5.0 Possible Marketing Strategies:
This section discusses possible marketing strategies that increase the project's presence in the target market by presenting its key aspects- innovative and sustainable design and infrastructure and related amenities.
Incubator/ Marketing Center: As per the design plan for the subject property, an incubator/marketing center is to be fast tracked and completed. This building could be inspired from the Hudson Yards Experience Center which uses technology and project models to demonstrate the uniqueness and luxury of the area and its buildings. It has museum-like brand galleries containing a series of immersive and interactive experiences that allow guests to engage in the neighborhood and its many parks, amenities, and extraordinary architecture. Model rooms feature wrap-around digital screens that display custom time-lapses and CGI animated views of the sweeping coastline and plaza, day or night. A site model celebrates the grandeur of the project and its visionary architecture. A room with 360-degree screens on a the walls and a touchscreen allows visitors to immerse themselves in a life-like experience of the outdoor views of the project.
Some images taken from the Experience Center's website follow:
Experience Center Entrance Lobby
Room with 360 Degree LED Screen
As the project gets leased and completes future phases, one should look into accommodating other amenities such as an international secondary and high school as well as both affordable and luxury housing alternatives that portray the site as a lifestyle, not merely a workplace.
Providing additional services to and hosting events for the Tech Park employees as has been done in WaveRock:
“WavePool”: A dedicated UberPool service brought to WaveRock by Tishman Speyer and Uber.
“WaveRun”: To promote health and fitness while serving as a PR event.
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