Soon after Manhattan-based American major Pfizer announced it was buying Madison-headquartered drug firm Wyeth for $68 billion, German giant Merck agreed to purchase rival Schering-Plough for $41.1 billion. This was 2009, a time when global pharma majors were trying to diversify their range of products to cope with the economic meltdown. It was also the beginning of a phenomenon that has played out fortuitously for Indian real estate companies.
Roughly three years after the 2008 global financial crunch, the Indian real estate sector currently is suffocating from yet another slowdown—but this time, it is getting much needed oxygen from a pharma boom in India, thanks to the country’s abundant talent pool, low costs and growing domestic consumption. While technology is a traditional mover of real estate, along with banking and financial sector, it is both the global and domestic pharma companies who have begun expanding aggressively. They’ve snapped up real estate in a way that no other sector is currently able to match, says Sanjay Verma, Asia Pacific CEO of Cushman & Wakefield, an international consultancy.
What happens in New York, or Basel can be inextricably linked to what happens in Mumbai or Delhi, or even Gujarat and Himachal, since office space is more globally linked than the residential market. Consequently, people like Samantak Das, National Head of Research at Knight Frank (India), another global consulting firm, feel that getting bullish on IT & ITES as drivers for real estate may only be feasible after two to three quarters as these sectors are linked to the global economy which is currently languishing. Yet, pharma continues to hold its own in the office real estate space, Das pointed out.
|PHARMA SPREADS ITS WINGS
|Prominent pharma SEZs/parks in Maharashtra
- Wockhardt Infrastructure SEZ, Aurungabad
- Ajanta Projects SEZ, Aurungabad
- MIDC Pharma SEZ, Ratnagiri
- Serum Bio-pharma Park, Pune
- MIDC Pharma SEZ, Nanded
Source: Maharashtra Industrial Development Corporation (MIDC)
|Prominent pharma SEZs /parks in Gujarat
- JB SEZ (HBS Pharma), Bharuch
- Jubilant Organosys, Bharuch
- Cadila Pharma SEZ, Surat
- Dishman Pharma, Ahmedabad
Source: Gujarat Industrial Development Corporation (GIDC)
|Pharma expansion in 2011
- City Firms
- Hyderabad Covedian, Matrix Labs, Perexel
- Bangalore Bayer, Zela, Invitrogen
- Mumbai B Braun, Bristol-Myers Squibb, Johnson and Johnson
- Pune Lupin
Source: Industry Sources
Pharma, the new IT?
This doesn’t mean that pharma has outstripped IT in sheer numbers (indeed it is just a fraction of it) but IT growth in India has become, by and large, saturated while pharma is just beginning its upward trajectory—which means that the sector’s appetite for real estate has only just begun.
The change in profile of the country’s top renters has been noticeable. In the commercial cities of Mumbai and Delhi, office space occupied by technology and IT players has dropped to 15 to 25 per cent from 35 to 50 per cent a few years ago, according to research by DTZ, an international advisory firm.
This could continue, according to Cushman & Wakefield executive director Kaustuv Roy who feels that the ‘India story’ could continue to attract some pharma majors to move to India during 2012. On the other hand, IT/ITES absorption is expected to remain stable or grow moderately (at 3 to 5 per cent) given the subdued market sentiments and economic impact from the West, Roy said.
Big-ticket deals & pharma hubs
Here are some examples of why pharma is a much-talked about category in the realty space these days: Johnson & Johnson closed a 200,000-sq ft front office consolidation at Goregaon East in Mumbai a few months ago, according to DTZ. Prior to that was a 100,000 sq ft corporate office consolidation at Jogeshwari East, Mumbai, by Pfizer once it had acquired Wyeth. And Merck took a 66,000-sq ft office space at Platina (Bandra-Kurla complex) in Mumbai, after it had bought Schering Plough & Fulford, the DTZ data shows.
A large number of pharma companies have also made Maharashtra, Gujarat and Himachal Pradesh the base of their manufacturing activities, with significant presence in the office space market, pointed out Anirudh Wahal, director, occupier services (west), DTZ. “For instance, Cadila Pharmaceuticals consolidated its office operations to a 100,000-sq ft office on Sarkej-Dholka Road in Ahmedabad,” Wahal said. “Pharma industrial hubs of Gujarat and Maharashtra are packed to capacity and spilling over to the neighbouring areas,” added Wahal.
The one big difference between the multinational technology firms and the pharma majors, Wahal said, is that IT companies mainly lease IT parks and SEZ locations on the periphery of a city. However, pharma companies usually locate themselves in mainstream business locations, and do value deals, he said. Pharma companies are also known to take large spaces especially for their manufacturing locations.
According to Cushman’s Roy, the overall absorption by pharma majors in the country in 2011 was recorded at 0.73 million-sq ft, significantly higher than in 2010. But the numbers are still small compared to the IT/ITES sector, where the absorption was recorded at 20.7 million-sq ft in 2011, Roy pointed out.
Among the pharma majors which took up space in Indian cities in 2011 include Parexel, Matrix Labs, B Braun, Bristol Myers Squibb, Bayer, Zela, and Invitrogen. While Bangalore witnessed maximum activity with nearly 48 per cent of the total pharma/R&D absorption in 2011, Hyderabad accounted for 31 per cent. followed by Mumbai and Pune together constituting 14 per cent of the total, as per Cushman data.
And yet, the pharma story is still in its infancy with tremendous room for further growth. “Strategic takeovers in the recent times such as acquisition of Ranbaxy, Piramal Healthcare, and Shanta Biotech indicate the opportunities and potential for growth in the Indian market,” according to Roy. Wahal pointed out that as drugs worth $60 billion go off-patent over the next five years, efforts are on to make India a hub for drug discovery and R&D.
That’s just more sweet music for the real estate sector.