Dear
Readers,
Welcome! Over the past three and
a half years there are many adjectives that can be used to describe Legion’s journey.
Memorable, exhilarating, gut-wrenching, fulfilling, arduous, and passionate are
just some of words that come to our mind. All along this journey, through the
good and the not-so-good times, the one thing remained constant was Knowledge Gathering. And thanks to our
families, some very close friends, colleagues, clients and well-wishers, we
hope to make our humble contribution to the vast ocean of knowledge that exists
in the field of Real Estate through this medium. True to our specialty, we will
focus primarily on Commercial Real Estate (CoRe).
Like any other industry, Real
Estate in our country has and continues to evolve rapidly. And within Real Estate,
Commercial Real Estate has experienced some serious ebbs and flows. Over the
past decade we’ve witnessed, unprecedented growth, radical drops, recession,
rapid recovery, stabilization, innovation, adaptation, downfalls, and any other
trend that is visible in business cycles. One things for sure though,
Commercial Real Estate is here to stay.
So where do we start then?
There’s just so much happening in CoRe that it makes it difficult to pinpoint
any one aspect that warrants more attention than the others. In any case in
order to simplify things, let’s get generic. Let’s start with the absolute three
cornerstones of CoRe.
A) The Occupier
B) The Developer
and C) The Investor
Occupiers are popularly known as
Tenants or End-users and are the main contributors to the demand. They come in
all shapes and sizes ranging from Start-ups to massive Multi-national
Corporations, from Cafés to Food court operators, from Banks to Retail Stores,
from Domestic to International companies. In the Concrete Jungle, Occupiers can
be categorized into three distinct types:
a)
The Elephants: These are
large companies with an enormous appetite for adding space to their ever-growing
Real Estate portfolios. They include companies several Fortune 500 IT companies
who outsource their Technology needs to India either through their own captive
unit or through a third party. Statistics reveal that the top 20 companies
account for more than 80% of the total office space absorbed in a year.
Considering that India absorbs close to 35Mn sft to 40Mn sft in a single year,
that number would amount to 28Mn to 30Mn. That’s a staggering number. The Elephants
more often than not form the bedrock for a Developer to develop quality office
space.
All Elephants
have elaborate processes that are set in motion by various specialist teams
that evaluate a particular project from all perceivable angles including
stringent Environment, Health and Safety (EHS) Norms; Statutory compliances;
Business Continuity Risks; Business Scalability; Employee Accessibility; And of
course running complex Financial Models to check the viability of the project.
Compliance to these norms by the Developer gives confidence with regard to the
marketability of the project by bringing in relatively smaller players.
Smaller, yes! Less important, No! Which brings us to our next category of
occupiers i.e The Big Cats.
b)
The Big Cats: In the natural world, the Big cats are the
apex predators in the Jungle. However, in the Concrete Jungle, One can refer to
companies that are powerful in terms of their presence but not necessarily in
terms of size. They may be far smaller in comparison to the Elephants but they
still occupy large spaces, are distinctly territorial and most importantly form
a major attraction for the Developer. Mid-Size IT firms form the largest chunk
in this category. Here again, they may be either Captive Units, Product
Companies, Engineering and Design services, Research and Development Wings of
their parent firms or third party service providers who compete in niche areas.
Decision-making
in these organisations are generally centralized and quite often taken
overseas. They are as elaborate as the Elephants and sometimes even more
stringent. For a developer, they are the marquee names that would add a
combination of quality and quantity to the IT Park.
c)
Springboks: I could use the term Deer but the South African
Counterpart sounds a lot more lively. Springboks are the equivalent of Small
and Medium Enterprises (SME). They aren’t all that small actually. These
companies are typically the ones who have been around for a while, their growth
has been steady but not feverish. They have their client bases well set and
continue to survive rather than thrive. Having said that, these companies
become mouth-watering propositions for the Big Cats to acquire at some point
(Just like in the Jungle, the predators hunt the prey).
Springboks
are harmonious in nature. They are not looking for back-breaking (from the
developer’s point of view) deals. They are happy to be in a project that houses
their basic needs. They don’t fall into the overly ambitious category. Mostly
these are third party providers who tend to win relatively smaller contracts
from the larger corporations who prefer hedging their risks.
d)
Rabbits: Rabbits are true their Natural Counterparts. They are
fleet-footed, timid to an extent, and grow (read breed) quickly. They are
usually the clients that ‘fill’ in smaller spaces in a particular project and
are extremely price sensitive. Mostly, companies that are under 5 years old
tend to fall into this category. They seldom have the negotiating power of the
previous two categories however, their contribution enhances the average
rentals of a particular project. Being small and flexible, these companies tend
to grow into multiple locations as their business may demand before reaching a
critical mass in order to consolidate.
Decision-making in Rabbits is
very nuclear and sometimes even single dimensional. They are mostly
entrepreneurial in nature hence requiring much less turnaround time. They are
cost sensitive when it comes to investing in their interiors or ‘fitting out’
the space and tend to look for innovative means to save on their expenses.
As some of you may notice, I have
generously borrowed the terms Elephants and Rabbits from my mentor and Guide
Subroto Bagchi’s book The Elephant Catchers. I do hope the above article helps
you gain a marginally better overview of one of the cornerstones of Commercial
Real Estate. We would love to hear from
you. Drop in your feedback in the comments column below or email us @ discuss@legion.co.in. Thank you for
dropping by.