14 minute read
Looking skywards
The skyline of major cities in the world is defined by some of the most iconic tall buildings in their financial districts. Prior to the tech boom, there was a strong need for accounting, auditing, consultancy and law firms to be in proximity to the city centre in order to efficiently service their key clients which included large financial institutions and major corporations in other industries. Further expansion of the financial sector also led to the growth of other supporting industries, thereby leading to rapid growth in office demand. This in turn led to the creation of central business districts (CBDs) which continued to grow vertically and, sometimes, horizontally.
The pattern of vertical development is best illustrated by the Manhattan borough of New York City, which has been the leading global financial centre of the world since the 1920s. Over the past century, the skyline of Midtown and Downtown areas rapidly evolved with the completion of numerous tall office buildings housing large financial institutions and major corporations. Today, this skyline is also punctuated by several tall residential towers and hotels.
Hong Kong has one of the highest number of tall buildings in the world; in addition, Shenzhen, New York City, Dubai, Guangzhou, Shanghai, Tokyo1 too figure among traditional financial centres, all of which rank high on the Global Financial Centres Index (GFCI).2
India’s growing vertical inclination over the years
With a height of nearly 80m, a residential building – Usha Kiran in Mumbai which was completed in 1961 – was the first tall building in India. After 1970, a few more tall buildings were built such as Subhash Chandra Bose Tower in Kolkata, and Oberoi Trident and Air India Building in Mumbai, but the construction of tall buildings accelerated in India only after 2000.
Source: Council on Tall Buildings and Urban Habitat; CBRE Research, Q2 2023
Note: Religious buildings have been excluded from the analysis
Source: Council on Tall Buildings and Urban Habitat; CBRE Research, Q2 2023
The acceleration in construction of tall buildings was associated with several factors that led to the transformation of the Indian economy. Some of these are listed below:
Steady pace of economic growth
From 1991 to 2003, when GDP grew at an average rate of 5.4% a year3 India’s economic growth steadily accelerated and became less erratic as well as well diversified across sectors and states. This gave a muchneeded fillip to infrastructure and real estate development, causing the country to make huge strides towards complete transformation.
Policy liberalisation fueled advancement in construction tech Increased rate of urbanization
Although liberalization in India was already underway during the 1980s, a more systematic set of reforms which led to sustainable growth did not kick in until the 1990s. Reforms such as deregulation of industry, relaxation in external trade policies and easing of government intervention in the services sectors opened India up for globalization.4
From 1992 to 2005, not only did India’s foreign investment increased by more than 315%5, but foreign companies and investors also brought with them new technologies that facilitated sophisticated methods of construction.
With the rapid growth in population, India also witnessed a steady rise in its urbanisation rate. Between 1960 and 2000, the percentage of population residing in urban areas increased from 18% to 28%6 With more people residing in cities, demand for space continued to grow rapidly. And as land became scarce, tall buildings emerged, allowing for efficient use of limited land resources. With a density of approximately 21,000 people per sq. km.7 a classic example is Mumbai which was one of the first cities to witness the inception of tall buildings.
3. India’s Growth Story, The World Bank, October 2018
4. India in the 1980s and 1990s: A Triumph of Reforms, IMF, March 2004
5. Foreign Direct Investment in India Since 1991: Trends, Challenges and Prospects, Social Sciences Research Network, January 2008
6. The World Bank, 2018
7. World Population Review, June 2023
Mumbai city – an ode to tall buildings in India
Today, nearly 77% of tall buildings in India are located in Mumbai. Considering the limited land resources in the city, it is likely to continue leading the construction of tall buildings going forward as well. Mumbai also commands premium prices compared to most other cities which also makes construction of tall buildings economically viable in the city.
1.4: Percent share of tall buildings in Indian cities
Source: Council on Tall Buildings and Urban Habitat; CBRE Research, Q2 2023
Note: Completed and under construction buildings have been considered for the analysis while religious buildings have been excluded from the analysis
One of the prime reasons that spurred the development of tall buildings in Mumbai was the exponential increase in urban population along with wealth accumulation among its population. The island city is also water locked from three sides which further strengthens the need to build vertically. The city’s population between 1991 and 2001 grew by 22.4% while train ridership increased by 42.37% (from 4.95 million to 6.4 million).8 Decentralization in growth led to the expansion of the city towards north and east, leading to the emergence of new micro-markets such as Malad and Goregaon in the Western Suburbs, and Powai, Vikhroli and Kanjurmarg in the Eastern Suburbs. Once residential destinations in the city peripheries, these areas are now termed as some of the key city centres of Mumbai. Despite this growth, land remains a scarce resource in its key urban city centres where extensive agglomeration and rapid urban population increase have caused land prices to soar.
Tall buildings are usually constructed in central locations with adequate infrastructure and necessary transport linkages so that the area can cope with the rise in the number of people travelling to and from the vicinity. It also depends on the location’s embedded value9 which needs to support the higher building costs of the tall buildings. Consequently, in a city like Mumbai, tall buildings generally become viable in locations with a relatively high embedded value in excess of INR 35,000 per sq. ft. of capital value for a residential tower. In addition, the views offered by high-rise structures augment the desirability factor of not only the structure but also the location. The combined effect of these factors have led to the development of high-rise structures in distinct clusters.
For instance, high-rise clusters in Mumbai have emerged in Central Mumbai and South Mumbai – two of the most expensive and premium locations in the city. Some of the most densely populated areas of the city, these locations are not only well connected via public transport and roadways to other parts of the city but also command a premium in real estate prices compared to other parts of the city.
Under Construction
Completed
Planned
Sectoral analysis
Figure 1.6: Share of tall buildings in India by their construction status and use More than 90% of tall buildings in India10 are residential while only 5% are office buildings. Several factors drive this split, which include:
Lack of support infrastructure
FSI conundrum Uncertainty on rental premium Public safety Ambiguity in building codes
Source: Council on Tall Buildings and Urban Habitat; CBRE Research, Q2 2023
Note: Completed, under construction and planned buildings have been considered for the analysis while religious buildings have been excluded from the analysis
Figure 1.7: City-wise share of tall buildings in India by their use
Tall buildings are material and energy intensive structures and require more energy than would be necessary at lower heights. Water and electricity usage is much higher in tall buildings as water has to be pumped to the highest occupied floor and all floors have to be artificially lit and mechanically ventilated. In case of an office building, the cumulative water and electricity requirement per head per day is much higher than a residential building due to a higher number of occupants. Many Indian cities continue to be plagued by frequent power cuts and inadequate water supply issues. Although office buildings are equipped with back up systems, provision of continuous power supply and regular water supply network could be expensive and challenging in case of tall office buildings. India is still dependent on fossil fuels and its energy infrastructure is not yet equipped to handle the amplified energy demands of tall office buildings.
Although payment of hefty FSI* / FAR (floor space index / floor area ratio) premiums to construct tall buildings is a common thread among both residential and office developers, lower FSI norms may not be economically viable for office developers in certain situations. As they are largely dependent on a rental revenue stream which is likely to be impacted by macro-level trends, lower FSI norms could be one of the factors discouraging them to build taller.
The average number of occupants per floor in a residential tall building is much lower compared to an office building so evacuating occupants in a residential building in case of a hazard is comparatively easier. On the other hand, building safety measures related to fire hazards, vertical transportation, provision for public services (washrooms, refuge areas, etc.) are usually more stringent and complex in an office building due to sheer number of people.
Residential tall buildings command a premium over average capital values as buyers are willing to pay additional cost for owning / renting an apartment in a high-rise building. Most tall office buildings also follow a similar trend where rental values are higher than the market average. However, the rent of an office building is also dependent on a number of other factors such as micro-market / location, size of the floor plate, building amenities, sustainability features, etc.
Currently, there is only a single code – IS: 16700 – developed by the National Building Code (NBC) that provides guidelines and standards for the structural design of tall buildings above 150m in India. However, the code is not exhaustive in nature and does not provide standards or guidelines regarding vertical transportation, hazard resistance, façade treatment, electrical fixtures, sustainability, etc. As office tall buildings require more complex and unified building systems owing to a high number of occupants, international codes and standards are usually referred for latest best practices and technologies to construct such buildings in India.
Hotel O ice Residential Mixed use Others
Source: Council on Tall Buildings and Urban Habitat; CBRE Research, Q2 2023
Note: Completed, under construction and planned buildings have been considered for the analysis while religious buildings have been excluded from the analysis
10. Includes completed, under construction and planned buildings
*The FSI ratio denotes a nationwide average range; a few cities / locations may have a higher FSI / FAR as per the local / regional / state guidelines, subject to a few considerations.
Why do we need these towering buildings?
Mass exodus of people from rural areas to cities has led to an increasing number of people moving towards the fringes of these cities due to lack of affordable housing in city centres. Although advancement in transport technology has allowed many major cities to de-densify and expand horizontally, leading to the emergence of suburbs, this pattern of urban sprawl has various costs associated with it. Low institutional capacities and fractured mandates prevent operationalisation of infrastructure and create challenges of providing affordable housing and efficient resource distribution. Research indicates that cost of providing basic services such as water, sanitation is 30-50% less in densely populated areas compared to sparsely populated ones.11
As we continue to spread horizontally and build outwards, more and more people continue to flock in cities, thereby, leading to an increase in carbon emissions, Tall buildings can help reduce carbon emissions by creating compact environments with efficient mobility features.
The positive image and branding associated with tall buildings is often cited as a key reason behind growing preference for these structures. The high profile, prestige and visibility of tall buildings means developers frequently use them as a marketing tool to boost their branding. In addition, the quality of tall buildings is top notch. Planning, designing, constructing and operating a tall building is very demanding and must overcome numerous challenges including wind and earthquake resistance, fire separation, elevator connectivity, etc. The standard and quality of power back-up, air conditioning, and water supply systems are generally of a much higher standard compared to other investment-grade buildings. Most tall buildings are also very well located in prime districts or newly developed CBDs.
One of the key reasons for high cost of constructing tall buildings in India is because the technology and construction methods used have not yet become mainstream. With construction of more tall buildings and wider adoption of technologies used, the cost is likely to align in the future.
Today, the definition of a true city centre continues to evolve, and there is more than one city centre in most Indian cities. Offices are usually located in these city centres but it is not often that employees are able to afford a home near their workplace. According to the CBRE’s Live-Work-Shop survey, not only more than 50% respondents displayed a higher preference to move to locations near the city centres, but nearly three-fourths of the respondents also prefer a one-way commute time of not more than 30 minutes to their workplace. Building tall can free up more space in the city centres where offices and homes are lifted above the street levels and the ground floors / basements are freed up for shops and leisure facilities. Open spaces between high-rise clusters can be developed as parks and public areas while enlivening the city skyline.
Tall buildings are not just popular among occupiers alone but investors may also look at them as a high-net return property. In case of an office building, tall buildings offer plenty of diversification in the tenant mix. In addition, the presence of multiple tenants where leases are expiring at different times also increases an investor’s exposure to the rental cycle. This allows them to prepare for any unprecedented event that might occur in the leasing market over a period of time. Tall buildings also boast of a timeless appeal which is an attractive factor for an investor who is in the game for the long haul.
Source: CBRE Research, Q2 2023
Note: The above rental values are quoted rental values including common area maintenance (CAM) charges and government taxes.
Source: CBRE Research, Q2 2023
Note: The above capital values are quoted capital values excluding height premium, car parking, preferred location charges (PLC), club charges and other additional charges.
In case of a residential building, a skyscraper enables an investor to receive a higher premium compared to other buildings as buyers are ready to pay over market value for a stellar view, better quality and the status that comes with owning / renting a tower space. Therefore, many residential tall buildings are positioned in the premium or luxury segments to make them more economically viable.
Height premiums are an important factor in pricing high rise residential towers; broadly speaking the higher the apartment, the higher the price. Height brings additional views, more privacy and added exclusivity. CBRE examined the unit by unit pricing of 15 current and recent residential schemes in Mumbai across a range of price points and specifications, varying from a modest 25 storeys to a colossal 50+ storeys. Our calculations indicate an average price premium of 10-15% after the 20th floor and higher than 25% in some cases after 40th and 60th floors.
Source: CBRE Research, Q2 2023
Note: Although height premiums are a common practice in Mumbai as several developers are able to charge a premium rate to provide a sea facing view, the premiums are higher in tall buildings. The list of 15 buildings was selected on the basis of location, developer profile, quality of construction, amenities, configuration, unit size, etc.
By 2030, India’s urban population is expected to be more than 600 million.12 In order to meet the demand of this urban population, India will have to build between 700 million sq. m. (~7,535 million sq. ft.) and 900 million sq. m. (~9,688 million sq. ft.) of residential and commercial space a year.13 Consequently, India will have to unlock many new growth avenues within its cities, leading one to conclude that tall buildings could become one way to fulfill the demand for urban space.
However, the path to building tall is not an easy one and may pose several challenges,
Meticulous design and construction High cost of building and maintenance
Space efficiency, along with the shape and geometry of a tall building, must satisfy the value and the cost of development where the net-to-gross floor area ratio should be optimum. The design of a skyscraper must be structurally sound with a strong and deep foundation to withstand the impact of strong winds, earthquakes and other external forces. Several major cities in India such as Delhi and Ahmedabad are located in seismic zone IV and V respectively which can pose additional challenges in the construction of tall buildings. Choice of construction materials is also critical as they should not only be fire-resistant and strong enough to weather external forces but also lightweight to minimize the load on the foundation.
Fire safety preparedness such as evacuation strategies, fire department accessibility, smoke movement and fire control, etc. takes precedence in the construction of a tall building.
Non-adaptive building laws:
Building vertical brings up additional costs as there are a number of technical challenges such as appropriate slenderness ratio14, enhanced façade treatment, provision of ultra-high-speed lifts, advanced safety mechanisms among others. Tall buildings also need regular inspections, repairs and upgrades which require specialized equipment and trained personnel to ensure longevity, further raking up maintenance costs.
These buildings also require more lighting, better air conditioning, and state-of-the-art lifts which results in high cost energy consumption compared to a standard low-rise building. In addition, developing a skyscraper is highly capital intensive, which reflects the ‘all-or-nothing’ approach to development and lack of any phasing opportunity. As a result, off-plan sales are required to forward fund the development. Generally a lender will require a sizeable proportion of units to be pre-sold before releasing any capital in case of a residential tall building.15
12. World Cities Report: Envisaging the Future of Cities, UN Habitat, June 2022
13. India's urban awakening: Building inclusive cities, sustaining economic growth, McKinsey Global Institute, April 1, 2010
Although there are many reasons for fewer tall buildings in India, some of the major deterrents to the construction of tall buildings are the FSI / FAR norms. Most of the cities in India have a permissible FSI ranging between 2 –5*, which means that developers have to pay a hefty premium for purchasing additional FSI in order to build higher.
14. Slenderness ratio is defined as the ratio of the structural height of a building to the narrowest structural width at the ground floor plan or tower base
15. CBRE’s Towers of London - A rising contribution to housing, May 2014
*The FSI ratio denotes a nationwide average range; a few cities / locations may have a higher FSI / FAR as per the local / regional / state guidelines, subject to a few considerations.
Note: In some cities, FSI FAR bonus can be awarded / purchased, subject to a few considerations
Public safety concerns: Along with a sound structural design to withstand wind pressures at higher altitudes, a tall building also requires enhanced fire performance and safety protocols. This includes provision of not only passive but also active control measures. Passive control measures will include use of fireresistant materials, building design intended to compartmentalize the fire and prevent spread and facilitate suppression while active control measures will include efficient emergency and evacuation plans with adequate exits points, fire alarm systems, sprinklers, etc. Smoke migration during a fire in a tall building can become a major threat to the life of its occupants. Even if this threat is addressed with an effective design through structural stability, sophisticated HVAC systems, and smoke-spread modeling techniques, the current fire safety infrastructure network available in India is not yet resilient enough to handle some safety-related concerns in a tall building.
Complex economics of tall buildings: One of the key considerations for the construction of a tall building is the delicate balance between cost and reward. Tall buildings have the potential to change the skyline of any city while simultaneously increasing the value of neighbouring properties. This means that a developer who owns property in the vicinity of a tall building, along with the building itself, can reap more collateral benefits. However, land cost, construction time, material costs, efficiency, etc. are some of the key factors that could decide the functionality of the finished product. In addition, a tall building has to be of optimum height where the benefit from each additional floor outweighs the cost to build that floor. Completion dates of these buildings are sometimes a decade in the future which also increases the risk of being exposed to a volatile market cycle.
