Gurgaon, June, 19, 2018-The National Capital Region (NCR), is consistently the second largest office market with 20% share of the annual nationwide leasing volume over the past five years. As per Colliers Research, the NCR should retain its dominance in office demand over the next five years. The expansion in economic activities, large infrastructure outlay and upcoming Grade A supply are the factors that should support high demand for commercial office space over the coming years.

Speaking on this, Sanjay Chatrath | Executive Director | NCR | Colliers International India, commented, “Recent developments and economic growth in Delhi NCR have put the city on the global map, competing with other top notch cities in the world. NCR holds number two rank in terms of office space absorption among all key cities in India. Improved infrastructure, enhanced metro connectivity, presence of premium buildings and new upcoming SEZ & Non-SEZ supply continues to attract MNCs and corporate bodies across the globe”.

Key trends that are likely to shape the NCR office market in the future are:

Trend 1- Robust metro network; unparalleled to any city in India:

By 2020 most of the business districts in the NCR should be connected by the metro rail. Colliers mapped all the three-primary commercial micromarkets of NCR on the Delhi metro rail network and concluded that most of the commercial hubs in Delhi already have metro access. With the completion of Phase 4 of the Delhi metro rail network, all the office locations of Gurugram and NOIDA should have metro access within a 3.0 km (1.8 miles) radius over the next three years. With the walk to work concept becoming increasingly preferred in the Corporate Real Estate (CRE) world, accessibility has become one of the significant decision- making factors for occupiers. As per Colliers, the robust metro network should be one of the major driving factors of office demand in the NCR.

Trend 2- Demand to follow Grade A supply in the coming years:

As per Colliers research, there is a trend where large occupiers are being more strategic in their real estate requirements, pre-committing space for future needs and optimising their real estate portfolios. Recently, large occupiers such as Gartner, Bank of America, Boston Consulting Group and Google have pre-committed to office space in upcoming Grade A properties. In preferred micromarkets we expect this trend to continue with demand following the Grade A supply in the upcoming years. Some micromarkets which we expect to see this trend include:

  1. Golf Course Extension Road- with 30% of the total upcoming new supply, is a natural extension of the Golf Course Road micromarket. The Grade A buildings in GCR quote about INR100 to 200 (USD1.70 to 3.0)/sq ft/month, while GCER is quoting rents in the range of INR45 to 75 (USD0.70 to 1.20)/sq ft/month, a substantial rent difference.
  2. NOIDA Expressway- We expect the NOIDA-Greater NOIDA Expressway micromarket to gain prominence over the coming years due to the huge supply pipeline. About 64% of the total supply is concentrated in NOIDA Expressway. Unlike in the past, when the supply was chiefly catering to Information Technology and Information Technology Enabled Services (IT/ITeS) occupiers, the new supply in this stretch is more commercial in nature, serving corporate occupiers.

Trend 3- Flexible workspaces to remain in vogue; aggressive growth to follow:

The flexible workspace segment in the NCR has been proliferating since 2015. Currently, flexible operators manage about 1.0 million sq ft (0.09 million sq m) of office space in the NCR. In our opinion, flexible workspaces are no longer considered as disruptors but rather as an integral part of modern-day CRE. Flexible workspaces started to appear first in the Delhi CBD around 2015-16 due to the lack of Grade A office spaces for smaller occupiers. Since 2017, the focus of operators has changed towards the larger markets of Gurugram and NOIDA. Players such as Wework, Cowrks and Goworks have recently leased large floor plates at strategic locations.

Trend 4- Special Economic Zones (SEZs) to be a magnet for technology occupiers:

The NCR has approximately 9.0 million sq ft (0.9 million sq m) of new supply planned to be developed over the next five years. More than 70% of the upcoming supply is concentrated in Gurugram in micromarkets such as Golf Course Extension Road and Sohna Road. NOIDA accounts for only 30% of the upcoming supply, which is primarily concentrated at NOIDA Expressway. According to our estimates, only 6.0 million sq ft (0.6 million sq m) is likely to be completed by 2020. To hedge against rent increases in their existing facilities, IT/ITeS occupiers looking to relocate, consolidate and expand in Gurugram will consider getting a good deal in office space strategically located in the state-of-the-art SEZ campuses on Golf Course Extension Road.

Trend 5- Gurugram to remain the dominating office market in NCR:

Gurugram has been capturing about 60% of the total regional office demand over the past five years. The demand for office space primarily comes from the technology, financial and manufacturing sectors which have shifted their corporate offices from Connaught Place and other parts of South Delhi area in pursuit of Grade A office space at affordable rents with good connectivity to the International Airport and other business districts of Delhi after the global financial crisis in 2008. Since then the city has become the favourite corporate office destination and has been experiencing demand from companies expanding. In Q1 2018, Gurgaon recorded 1 million sq ft of gross absorption accounted for about 26% of the PAN India absorption.

Trend 6- NOIDA to transform into an affordable commercial hub:

Out of the overall leasing volume in the NCR over the past five years, NOIDA accounted for roughly 29% of the total demand. Notwithstanding the traditional image, the city is also gearing up to host a plethora of MNCs in upcoming years. The city witnessed 1.0 million sq ft (0.09 million sq m) of absorption in Q1 2018 which was almost double than Q1 2017 demand.

Trend 7- Redevelopment – a facelift for Delhi's real estate market:

National Buildings Construction Corporation (NBCCs) first project in Nauroji Nagar, supplying about 3.3 million sq ft (0.3 million sq m) of Grade A space is already at an advanced stage of construction. Due to its prime south location in the city, the first e-auction witnessed considerable success with bids from public-sector units such as Power Finance Corporation, Hindustan Petroleum Corporation Ltd. and Energy Efficiency Services. The cumulative area sold was about 0.28 million sq ft (26,000 sq m) of office space. The average sales price was about INR38,000 (USD587) per sq ft, which is 8 to10% higher than in Delhi’s CBD. The second tranche of the e-auction is planned to be conducted by the end of 2018. Colliers expects the redevelopment of these projects to act as a facelift to the overall Delhi commercial market, despite the initial buildings being primarily occupied by single- tenant state-owned companies, banks and public-sector units.

Surabhi Arora, Senior Associate Director, Research at Colliers International India added, “Recently, we witnessed a trend where large occupiers are being more strategic with their real estate requirements, pre-committing space for future needs and optimizing their portfolios. We expect this trend to continue with demand following the Grade A supply in the upcoming years. To cater to this demand, developers need to be innovative in their designs to address the changing preference of new workforce. Also, it would be good to focus on sustainability as it will help them to create future-proof buildings.”

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