D.A.R.T.

A survey of Corporate
Real Estate Heads

April 2009, India

Achieving Targets by improving

Real Estate efficiency in a Slowdown

www.dtz.com
Demand Analysis and Real Estate Trends is Contents
a survey of corporate real estate heads across 4 Executive Summary
sectors with insightful findings for optimising
6 Objective and Methodology
business operations in the current slowdown.
8 Occupier Strategies
10 Renegotiation
12 Relocation
14 Rationalising Space Layout
16 Alternative Lease Structure
18 Conclusion
Executive Summary
46% continue to expand their real
estate space, 25% are contracting and
29% are not planning movement
Majority expect the market to bottom
out after six months signifying their
intent to take-up space in the long run
When the Indian corporate sector is trying to overcome
the challenges of difficult economic environment, we
sought opinion of key occupiers of office space to
determine how they plan to sustain and optimise their
business activities in the current environment.
DTZ survey of 48 companies across Delhi, Mumbai
and Bengaluru gave an insight into the concerns
of occupiers and the likely strategies adopted by
them. The key findings of the survey are as follows:
n Renegotiation
70% of the occupiers are intending to renegotiate
nearly 10% to 15% on their base rental.
25% of the respondents are re-negotiating space
with developers (entering into new lease that reflects
fresh space requirements).
n Relocation
43% of companies are planning possible relocation.
Among these, 53% are down-locating, while
Market Impact n Change in Tenants Profile
Based on the above findings, DTZ expects the There would a significant change in tenant sketch, as
followings reactions from market players. more and more occupiers look for relocation to SBD
and PBD micro markets either due to decreasing
n Rental Reductions rentals or efficient office spaces.
With more and more occupiers renegotiating, we
expect rental correction would continue, till next two n Improvement in Construction Quality
quarters. As more and more occupiers take advantage of
the correction cycle by upgrading from Grade B to
n Better Lease Engagement Terms Grade A office spaces, we would witness evolution
More and more occupiers would petition for better of value adds propositions and improvement in
terms in lease deeds (like reduced lock-in periods,
security deposits, advance rentals etc) thereby
quality of new developments across cities.
bringing structural shift in the office space leasing, n Market Inflexion
more favourable for tenants. With combined opinion, of occupiers (DART Survey)
and real estate market analysis (The Phoenix Hope
November 2008), we expect office markets to reach
near their bottom by Q4 2009.
KEY FINDINGS OF D.A.R.T. SURVEY
some (19 percent) have also started moving to more
premium locations to capitalise on the downturn.
n Rationalising Space Layout
43% of respondents have taken measures to
reconfigure the office layout and improve the efficiency.
n Alternative Lease Structure
30% of the respondents optimising through lease
structure alterations. Amongst this, while nearly 97%
of the respondents would forgo renewal options (if
given a chance), 81% of the corporates are in the
process to renegotiate Common Area Maintenance
(CAM) charges.
These, and related responses, are likely to influence the
growth and subsequent robustness of Indian real estate
sector. We expect that the efficiency improvements that
unfold as a result of these new optimisation strategies
would become common and ensure that the demand
side decision makers bring a holistic change in other
stakeholders (including developers) as well.
SOURCE - DTZ RESEARCH
D.A.R.T. | A SURVEY OF CORPORATE REAL ESTATE HEADS | INDIA 5
Objective and Methodology

Objective
Occupiers of office space are today
navigating multiple impacts of economic
downturn. While in the past they were
reeling under the pressure of high rentals,
the recessionary trends surfacing in
the Indian economy have caught them
A total of 48 companies were interviewed, 62 percent of which were
MNCs. The respondent companies were grouped into three categories:
IT/ITeS (43 percent of respondents), BFSI (22 percent of respondents)
and Others (35 percent of respondents, which include media &
entertainment, manufacturing, professional services etc). It is important
to know that the responses were standardised at various levels to bring
objectivity in the survey. The responses were analysed and structured
subjectivity is inevitable in these kinds of studies. These results were also
matched with transactions team to conform client specific real estate
strategies.
Questionnaire
The interviews were aimed at collecting the objective aspects of the
questionnaire, while at the same time understanding the qualitative
DTZ

interviewed
in terms of the themes emanating in the demand side of the Indian perspective of occupiers. Certain discernible optimisation measures have
unaware. From managing expansion, the emerged from the survey and all of them have shown a varying degree of
Real estate (see next section). While utmost care was taken to get
real estate corporate heads are today importance amongst three cities surveyed. Some of the key findings that
the accurate information about the respondent company, some bit of
struggling to manage costs and improve
efficiency of their real estate portfolio.
emerged are discussed in the next sections.
48 companies,
largely MNCs
D.A.R.T. QUESTIONNAIRE
DTZ’s DART study analyzes the new
directions charted by the real estate

in Delhi NCR,
decision makers of India Inc. to tide
over the new and challenging business
environment. By understanding the nature
and extent of these new directions, this
study takes a insightful look into demand
Mumbai &
Bengaluru
dynamics of commercial real estate in
India. Moreover, we believe that the
findings of this survey would help all real
estate stakeholders to better understand
and plan the near and medium term
and asked
about their
future.

Methodology
The study was conducted through a optimisation
detailed questionnaire administered in
Delhi NCR, Mumbai and Bengaluru in
the months of Jan and Feb of 2009. The
strategies &
respondents of the survey were asked
about their optimisation strategies in future outlook
present environment and their future
outlook. Through a comprehensive, and
in-person discussion with corporate real
estate heads, their preference as well as
extent of expectation from each strategy
was assessed.
SOURCE - DTZ RESEARCH

D.A.R.T. | A SURVEY OF CORPORATE REAL ESTATE HEADS | INDIA 7

Occupier Strategies
70% respondents
are reducing
base rent as
opposed to
reducing office
space, most
occupiers remain
optimistic about
the future
Occupiers have been quick to move their real estate
strategies to manage their costs more efficiently during
the course of the downturn. Among the measures
taken to reduce costs, consolidation featured as the
most prominent. However, it is interesting to see that
some firms are going ahead with their expansion plans,
using the present downturn as an opportunity.
The respondents were asked about their future office
space movement (i.e. contraction or expansion), the
speed of this movement (fast, slow, status quo) and the
likely revival. The results were as follows:
n Office Movement Figure 1 - Occupier Movements Figure 2 - Key Drivers for Occupier Movements
46% are still expanding of which 26% are expanding
at a higher rate taking advantage of downturn,
while 20% have slowed down expansion from their
budgeted plans. 29% of the respondents have no
movement planned as of now, as they prefer to wait
and watch for some more time (Figure 1).
n
Office Expansion
Amongst those that are expanding, nearly 75% of
them are keen in expanding in metros and only 25%
wish to move to tier 2 & tier 3 cities. Contrary to the
general expectations, only 25% of the respondents are
in a contraction mode. This signifies that rest of the
occupiers are still hopeful of their business/resource
SOURCE - DTZ RESEARCH SOURCE - DTZ RESEARCH
buoyancy to emerge in the near future.
n Drivers for Expansion Figure 3 - Sector-wise Consolidation Figure 4 - Expected Real Estate Bottom
Every respondent was asked to give his preference
for key drivers for expansion or contraction in the
present environment. Base rents emerged as the most
critical driver, while tax incentive was seen as the least
important of all (Figure 2).
n Space Consolidation
Consolidation (implying rational utilisation of existing
space by restructuring real estate portfolio) is emerging
as a best practice with 30% respondents implementing
the same. However, unlike developed economies, a lot
of Indian occupiers are still not keen to simultaneously
consolidate their entire real estate portfolio.
SOURCE - DTZ RESEARCH SOURCE - DTZ RESEARCH
n Sector-wise Analysis
Within these 30% respondents who are consolidating,
IT/ITeS firms are the front runner (Figure 3). This is Future Outlook
primarily due to well spread out portfolio of this sector, We asked the respondents on their outlook of the real estate market, going forward (Figure 4). 38 percent think that the
across Indian cities, which necessitate a consolidation market would bottom out in next 6-12 months, which will create an opportunity for entering in real estate transaction.
strategy. BFSI, though, is not as keen (18%), as most With majority of the real estate occupiers are optimistic of the near future, we expect that these demand side players
of their real estate portfolio is in form of retail branches would actively look at new opportunities in next one year thereby bringing stability in the market.
that cannot be consolidated.
D.A.R.T. | A SURVEY OF CORPORATE REAL ESTATE HEADS | INDIA 9
Renegotiation

The occupiers who have already executed leases n Renegotiation of Office Space Figure 6 - Sector-wise Rental Renegotiation
Figure 5 - Occupier Behaviour
were asked questions on the coverage and extent of Similar to rents, space renegotiation is also
renegotiations. Base rental renegotiation emerged as being followed by most occupiers. This entails
the most favoured measure by the occupiers, across entering into new lease that reflects fresh
cities and sectors. The findings are as follows: space requirements emerging out of business
reasons and/or space optimisation of existing
n Renegotiation on Rentals area. Nearly 25% of the respondents are
As per the survey, 70% of the occupiers are renegotiating their spaces, with BFSI sector
renegotiating or plan to renegotiate on their contributing to most in this category (Figure 7),
base rentals (Figure 5). The discussions with much higher than the other sectors.
respondents reveal that the extent of rental
renegotiation could go upto 15% (downward) in
Future Outlook
some cases, though the average figure stands at
Going forward, we expect more companies to
10% for most occupiers.
carry out space renegotiation in an aggressive
manner. We also expect developers to start
n Occupier Insights SOURCE - DTZ RESEARCH
offering more reasonable (market driven) deals to
80% of the occupants that are renegotiating SOURCE - DTZ RESEARCH
the occupiers to help retain their clients.
today, entered into property leases between
March 2006-December 2007, which was the
peak of the real estate cycle in India. Moreover, Figure 7 - Sector-wise Space Renegotiation

Base rental
majority of the other 30% occupiers who are not
renegotiating (as mentioned above), are either
wanting the developers to come forward with a
better deal or waiting for first three years of lease
to finish. In other words, almost every respondent
renegotiation
emerged as the
today wants to rework its base real estate costs
(i.e. rentals), in some form or the other.

Sector-wise Analysis
At a sectoral level (Figure 6), no particular trend
most favoured
is emerging for rental renegotiation. Nearly 70%
of all sectors are planning/or implementing measure by
renegotiation of their office space. The discussion
with the IT/ITeS respondents highlighted another
trend. The real estate heads of this sector are
the occupiers, SOURCE - DTZ RESEARCH

working aggressively to bring down their real

estate costs in metro cities in order to rationalise across cities and
their overall costs (that includes operations in tier
2 and tier 3 cities).
sectors
D.A.R.T. | A SURVEY OF CORPORATE REAL ESTATE HEADS | INDIA 11
Relocation

Relocation implies shifting of existing occupiers to new locations, n Category of Relocation Figure 10 - Segmentation of Relocation
Figure 8 - Relocation Strategy
irrespective of expansion or contraction movements. It could take Among those planning to relocate, Up-location
the form of complete displacement (where the occupier shifts (relocating to a more premium area) was noticed
lock-stock and barrel) to a new location or a partial relocation amongst 19% of the respondents, while 53%
where some proportion of existing operations are relocated while reported down-location (moving to a less
the rest is maintained. premium location) (Figure 10). The reason,
for up-location are many. Increasing visibility
The survey findings revealed the following:
by moving to upmarket locations is emerging
n Relocation an important factor for some companies.
43% of the companies surveyed are either planning to relocate Micro-markets like BKC in Mumbai and Jasola
or already in the process of relocating (Figure 8). This is a in Delhi NCR have seen sustained enquiries
high proportion, though it is difficult to conclude that all of from companies seeking to relocate from less
this is driven by the market downturn and was not planned premium locations. Another trend noticed was
otherwise. What is also noteworthy is that most of the the movement of companies from Grade B SOURCE - DTZ RESEARCH
SOURCE - DTZ RESEARCH
occupiers are planning to partially relocate their operations. buildings to Grade A buildings due to increased
Moreover, majority of the respondents are planning relocation affordability. Similarly, the down-location is driven
Figure 9 - Relocation Timelines Figure 11 - Sector-wise Relocation
in the next 6 months, showing the urgency given by occupiers more due to the fact that good quality Grade
to this strategy (Figure 9). A space is not available in CBD areas, forcing
people to look for down-location.

n City-wise Analysis
These findings were similar across the three
cities, with no city showing unusually high
Corporates are tendency for relocation. From the survey sample
a higher proportion of companies from Delhi

relocating to reduce expressed a desire to up-locate from peripheries

to SBD vs the reverse in Mumbai and Bengaluru.

operating expenses, As expected, companies with multiple offices in

metros have shown more willingness to relocate.

while some are taking SOURCE - DTZ RESEARCH n

Sector-wise Analysis
The decision to relocate was not an easy one to
SOURCE - DTZ RESEARCH

advantage of the take, especially for IT/ITeS companies (only 38%

are implementing relocation), as the setups

current scenario by moving to

included large floor spaces and other expenses
(like sunk cost of fit outs) are high as well, making Future Outlook
relocation an unattractive proposition. However, Business relocation is steadily emerging as an attractive option

premium areas among the relatively smaller BPOs and KPOs,

a willingness to consider relocation has been
and is motivated by a desire to reduce operating expenses. We
expect that over a period of time, many more corporates would
observed across all three cities (Figure 11). be exercising this option, with or without recession.

D.A.R.T. | A SURVEY OF CORPORATE REAL ESTATE HEADS | INDIA 13

Rationalising Space Layout

At a time when the occupiers are quite keen to save Figure 12 - Office Layout Rationalisation Figure 13 - Sector-wise Layout Alteration
cost on all fronts and drive value from real estate, the
rationalisation of office space layout has emerged 100%

43% corporates as an effective strategy. The companies are critically

reviewing the amount of space they occupy to
90%

80%
identify space reduction opportunities. We asked

are increasing
70%
the respondents regarding the space rationalisation
60%
strategy and measures to achieve the same; findings

efficiency of space
50%
pertaining to this question are as follows:
40%

30%
Layout Rationalisation

layout by reducing
n
20%
43% (Figure 12) of the occupiers have made
10%
changes in varying degrees in their office layout to

desk space per

0%
improve the space utilization, which could result in
reduced desk space per employee or more desks
SOURCE - DTZ RESEARCH SOURCE - DTZ RESEARCH
in the same space or both. This measure is mostly

employee, hot exercised by the occupiers in Delhi, followed by

Mumbai and Bengaluru. This could be attributed
n Components
While some of the IT/ITeS cannot carry out

desking and
Figure 14 - Measures to Reduce Costs
to the higher concentration of BPOs and KPOs,
changes in their space layouts as they are
which have been hit severely in the downturn and
bound by space standards agreement with
were probably having scope of space optimisation 100%

adding work in their design.

their clients, others are extensively and
aggressively executing new layouts to improve
90%

80%
their space utilisation. These firms are creating

stations by
70%
n Sector-wise Analysis
additional work spaces by trimming down on 60%
On a sectoral level, effective space utilisation
open spaces, conference rooms, outsized 50%
seems to be actively adopted by IT/ITeS sector,

trimming lobbies & with half of the IT/ITeS companies making

improvements to their space layout, followed by
lobbies etc. During the discussions, occupiers
claimed that by implementing such internal
40%

30%
and external measures, some firms have

other open areas

BFSI sector. Contrary to general expectation,
the sectors like Pharma, Telecom, Media &
Entertainment and Professional services (presented
by Others Category in the survey) which are not
severely affected by the current slowdown in
the economy, are also implementing the layout
alteration measures (Figure 13).
20%
brought down their per employee space by as 10%
much as 20 percent. 0%
n Supplementary Measures
SOURCE - DTZ RESEARCH
While 37 percent of the respondents are
reducing desk space (by altering layout) to
bring cost savings, there are many other
strategies that are been implemented. These Future Outlook
include internal measures like “go green”, A lot more is expected from the occupiers to rationalise this
Car pool, work from home and hot desking important cost component, as such measures have direct
(Figure 14). bottom-line benefits.

D.A.R.T. | A SURVEY OF CORPORATE REAL ESTATE HEADS | INDIA 15

Alternative Lease Structure

Other than base rental renegotiation (which Figure 15 - Lease Structure Alterations
was discussed earlier), non-rental alterations in
lease deed has emerged as another noteworthy
optmisation measure. Some of the clauses
Reducing escalation clause, lock-in
that are getting renegotiated and have gained
focus in the lease structure include escalation,
period, security deposit and common
area maintenance (CAM) charges;
common area maintenance (CAM), parking,
signage and inclusion of subletting/subleasing
clause. The key findings of the respondents are
as follows:
inclusion of subletting/subleasing
n

Lease Alterations
30% of the respondents were renegotiating
clause, more parking spaces and
better signage facility
on above mentioned parameters, which is a
small proportion but is expected to increase SOURCE - DTZ RESEARCH

(Figure 15) during this downturn. Moreover,

Figure 16 - Sector-wise Lease Structure Alterations
as can be seen from (Figure 16), most of the
alterations are getting implemented in IT/ITeS
sector. n Additional Clauses
Figure 17 - Measures of Lease Structure Alterations
Occupiers are also seeking flexibility in
n Implementing Renewals other leasing parameters, like reduction
Almost all the corporates who wish to alter in the lock-in period from 3 years to 2
their lease deed would want to stay away years, reduction in security deposits,
from renewing their leases in next 6 months. increased rent free periods of upto 3
This is significant, as it depicts that a large months and deffered rentals.
proportion of the occupiers are unhappy
with the existing lease structure which they
feel is not truly reflective of market realities or
Future Outlook
It needs to be noted that by not exercising
is unreasonable.
the renewal of leases, the market is likely
to see downward pressure on rents, as
n Escalation SOURCE - DTZ RESEARCH
the supply of space increases from such
Escalations (renegotiation of future rental
n CAM and Subletting occupiers. However, the lack of clarity
escalation as mentioned in the lease
Nearly 81% of corporates are renegotiating on CAM charges, and frequent changes in lease structure
deed) emerged as the second favourite
forcing landlords to calculate them on actuals as many were is also not healthy practice for the overall
measure after ‘foregoing lease renewal’
charged a 10% premium till recently (Figure 17). Another growth of the real estate sector. Moreover,
(Figure 17). Renegotiation on escalation
factor that has seen active occupier interest is inclusion of SOURCE - DTZ RESEARCH by not renewing leases the occupiers
ranged from 5%-10% and most occupiers
subletting/subleasing clause, especially for those corporates are somewhere losing out in terms of the
awaiting renewals wanted a reduction in the
holding additional office spaces and paying a premium on transaction costs (sunk cost of fit outs and
escalation slab or exemption from the clause
these unutilised spaces. brokerage).
at the time of renewal.

D.A.R.T. | A SURVEY OF CORPORATE REAL ESTATE HEADS | INDIA 17

Conclusion Contacts

In the midst of the real estate slowdown, occupiers n Tenant profile to undergo a change Our Offices in India The Team Management Team - India

are adopting new strategies to adapt to the changing As occupiers bring better utilisation of space and
environment. The DART study by DTZ captures the relocate to cheaper locations, the commercial Delhi NCR Priyankar Bhikshu Anshul Jain
Associate Director CEO- India
collective opinion of how corporates are navigating the districts are likely to undergo a shift in this downturn # 804 Time Tower priyankar.bhikshu@dtz.com anshul.jain@dtz.com
Mehrauli-Gurgaon Road
current realty downturn and what it portends for the scenario. Gurgaon 122 002
Gopeshwar Srivastava Hugh Hamilton
future. Tel +91 124 459 7500
Assistant Manager Head of Occupational and Development Markets
Fax +91 124 459 7501
n The quality and cost of construction to improve gopeshwar.srivastava@dtz.com hugh.hamilton@dtz.com
Based on the discussions with occupiers, we expect As more and more occupiers shift to Grade Bengaluru Mayank Sehgal Ambar Maheshwari
the future to have following features: A buildings as a result of this downturn, their Level 2 Nitesh Timesquare Associate Head of Investment Advisory
# 8 M G Road mayank.sehgal@dtz.com ambar.maheshwari@dtz.com
awareness and value proposition would also Bangalore 560 001
n Revival in early 2010 undergo a change. We expect occupiers to Tel +91 80 4123 1600 Pradeep W Fernandes David Parsley
Fax +91 80 4151 6286 Senior Associate Head of Project Management Services
Although it is difficult to generalise for cities and subsequently raise their acceptable level of building pradeep.fernandes@dtz.com david.parsley@dtz.com
sector, the likely timeline of revival is in next 3-4 quality and total cost of ownership, putting a Mumbai
Rejish T C
quarters. This is more optimistic than what most pressure on developers to focus on value add # 5322 Residences Grand Hyatt Senior Associate
market observers have estimated, indicating the Santacruz (East) rejish.tc@dtz.com
measures in office space development. Mumbai 400055
buoyancy that prevails. Tel +91 22 6676 1676
Fax +91 22 6676 1677

n Rental reduction, an opportunity!

In conclusion, while the downturn has
In the discussions, it emerged clearly that occupiers
brought uncertainty for occupiers, it has Chennai
# 681 Regus Citi Centre
who are expanding see this as a golden opportunity
provided them with a new strategic focus. Level 6 Chennai Citi Centre

to enter the market and reduce the real estate cost.

We expect that such a transformation 10/11 Dr Radhakrishnan Salai
Chennai 600 004
would bring some long lasting managerial Tel +91 98459 96281 For media enquires, please contact
n Developers to offer better terms practices into the fabric of Indian real
Divya Pall
As the boom in real estate coincided with the real estate sector. Senior Manager - Marketing Communications
economy, lot of unreasonable expectations got +91 99103 86676
divya.pall@dtz.com
embedded in the commercial transactions. We
expect the developers to start offering more realistic
terms (both rental and non rental) in their leases.

DTZ has over 12,500 people in 150 cities operating in 45 countries.

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