Track2Realty: The multinational companies are increasingly investing through purchasing offices in India with INR 2,470 crores worth office transactions in the last 2 years. There is a seismic shift in the traditional approach of leasing space that such companies have had for years while considering overseas investment. MNCs in the BFSI, ITeS, FMCG & Pharmaceutical sectors are among the lead commercial office buyers in these markets. These are the findings of a report by Cushman & Wakefield.
According to the C&W report, in 2010, foreign MNCs contributed negligible to the sales of commercial office space, however, the report indicated that in 2012, 2013 and during the1st quarter of 2014 foreign MNCs contributed 43% to the total sales value of commercial offices.
INVESTMENT SALE VALUE OF COMMECIAL OFFICES
| YEAR | MNCs
(INR Crores) |
GRAND TOTAL
(INR Crores) |
% SHARE OF FOREIGN MNCs |
| 2012 | 1,230 | 1,910 | 64% |
| 2013 | 360 | 1,320 | 27% |
| 2014 (Q1 2014) | 880 | 2,500 | 35% |
| TOTAL | 2,470 | 5,730 | 43% |
Source: Cushman & Wakefield Research, 2014 data is updated until March 2014
SELECT MAJOR OFFICE PURCHASES BY MNCs
| Location | Company | Sector | Space Purchased (millions of s.f.) | Investment Size (INR Crores) |
| Mumbai | Citibank India | BFSI | 0.3 | 1,110 |
| Mumbai | Bayer Group | Pharmaceutical | 0.16 | 130 |
| Delhi-NCR | GlaxoSmithKline | Pharmaceutical | 0.02 | 140 |
| Hyderabad | Cognizant | IT-ITES | 0.25 | 110 |
Explains Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield, “Companies that have established operations in India and are confident of their projections and potentials in the country are now tailoring their real estate requirement so that they can be more cost-effective. Companies in specific sectors such as Pharmaceuticals and IT & ITes are looking to consolidate their research and development divisions with their front-end divisions in a single set-up and are looking for assets to purchase as it proves to be a cost effective strategy for companies.”
However, there are other factors too, namely the tax implications for US based companies. “Another factor compelling especially the US-based companies to switch from ‘Leasing strategy’ to ‘Buying strategy’ is that corporate profits earned outside the US are not subject to federal taxes unless they are brought back to US shores. This makes these companies cash rich and they are able to re-deploying hefty profits earned back in the emerging markets rather than loose the earnings to taxes” added Dutt.
There is also the cost benefit in the long term as rents have been increasing every year from 2011 to 2013 in most of the prime markets where MNCs have typically leased office spaces. Though rentals have been more stable this year, there are expectations that they will start increasing from next year. Capital values have also increased moderately during the period. Hence, companies stand to gain financially if they decide to deploy capital to acquire the spaces they occupy.
| CHANGE IN AVERAGE VALUES (2011 TO 2013) | |||
| City | Micro Markets | Rents | Capital values |
| Delhi- NCR | Gurgaon – DLF Cyber City M.G Road | 7% | 20% |
| Delhi – Connaught Place | 34% | 16% | |
| Noida | 15% | 37% | |
|
Bengaluru
|
Outer-Ring Road
(Sarjapur-Marathahalli) |
10% | 9% |
| Whitefield | 16% | 8% | |
| Pune | Hinjewadi | 9% | 8% |
| Mumbai | Bandra-Kurla Complex | 11% | 10% |
| Hyderabad | Madhapur | 18% | 11% |
