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Report on Delhi NCR Office market

Press Release: Colliers International Delhi NCR Office Market snapshot 2013

 

Highlights

 

  • With 8.31 million sq. ft. of cumulative office leases, Delhi-NCR second highest in terms of office space absorption after Bengaluru.
  • Gurgaon is expected to witness significant number of lease renewals in 2014 and 2015, as companies that set up offices in 2004 – 06 (the “ first wave” of occupiers) approach the end of their lease terms.

In 2013, in Delhi NCR commercial space absorption increased by 22% as compared to last year according to a report by Colliers International.

Of the 8.31 MN Square Feet commercial lease in Delhi NCR, 70% of the space was leased in Gurgaon, 23% in NOIDA and the remaining 7% in Delhi. IT/ITeS companies were the major occupiers, contributing 50% of the total absorption, followed by Engineering and BFSI, together accounting for 25% of the total absorption.

Of the 6.44 MN SF total new office inventory space added in 2013, only 12% was located in Delhi and the remainder was evenly split between peripheral micro markets of NOIDA and Gurgaon. The current overall vacancy is 19%, which is marginally higher than that recorded at the same time in 2012 (18.5%).

There was a marginal 3% Year-on-Year decrease in rentals in Delhi, while Gurgaon and NOIDA witnessed stable rental values during 2013 baring few  micro markets such as Cyber city in Gurgaon and sector 18 in NOIDA which witnessed an increase of 7% and 2.5% respectively, on Year-on-Year basis.

Says Joe Verghese, Managing Director Colliers International “Inspite of poor market sentiments, the commercial real estate market in Delhi NCR witnessed 22% more absorption in 2013 compared to the previous year. Delhi NCR bucked the downward trend seen in all other major metros. Even developers, sensing muted demand for office space launched minimal new commercial projects in 2013. The surge in office space lease transactions was led by the IT/ITeS sector that absorbed 50% of the total 8.31 million sq.ft. However, in 2014 we expect Delhi to follow the national trend and witness subdued demand, at least until the national elections.”

According to the Colliers International report, there is limited new stock that will be ready and available in 2014. Due to the above, average rental values in Delhi NCR will remain stable and vacancy rate will fall marginally. Gurgaon is expected to witness a lot of lease renewals in 2014 and 2015, as  companies that set up offices in 2004 – 06 (the “ first wave” of occupiers) approach the end of their lease terms. These companies will have to pay rentals at present market rates that are significantly higher. These companies will need to choose between staying in their current location at higher rentals and relocating to peripheral micro-markets offering cheaper rentals. Gurgaon will thus witness further segmentation of micro-markets in cost terms in 2014.

As most of the new supply is expected in NOIDA, the rental values will be under downward pressure. Locations such as the NOIDA Expressway may buck the trend as corporate prefer to locate along this stretch which offers superior infrastructure and quality of buildings.

Unless circle rates are rationalized, the sale market in Delhi will remain stressed. As in 2013, sales volume of commercial space in Delhi will remain low.

Delhi National Capital Region – (Delhi, Noida and Gurgaon)

Highlights

Unlike other major Indian cities, the cumulativenew office space leaseswere 22% more than the previous year.In 2013, Delhi NCR witnessed approximately 8.31 million sq. ft. of commercial space lease absorption. A number of large deals included developer’s committing to hard options to accommodating new and existing occupier expected growth requirements. Despite better absorption rates, there was almost no new commercial project launches from the major developers, who preferred to start residential projects over commercial developments.

Demand

Within Delhi NCR, 70% of the space was leased in Gurgaon, 23% in NOIDA and the remaining 7% in Delhi. Most tenants werecost conscious and looked at ways to reduce their potential occupancy costs. Thus as in other markets, relocation and consolidation were the primary demand generators for office space. Compared to the previous years, most landlords were willing to provide greater incentives to occupiers. The average ticket size of the deals was approximately 34000 sq. ft. around 30% more than the last year figure of approx. 26000 sq. ft.

Approximately 26% of the total absorption of more than 31 million sq. ft. across top 6 cities was contributed by NCR.  IT/ITeS remained the major occupiers, contributing 50% of the total absorption.This was followed by Engineering and BFSI, together accounting for 25% of the total absorption.

Supply & Vacancy

New office inventory was close to 6.44 million sq. ft. during 2013.Of the total new space added to the stock in 2013, only 12% was located in Delhiand the remainder was evenly split between peripheral micro markets of NOIDA and Gurgaon.The current overall vacancy is19.0%, which is marginally higherthan that recorded at the same time in 2012 (18.5%).

 

Rental & Capital Value

There was a marginal 3% Year-on-Year decrease in rentals in Delhi, while Gurgaon and NOIDA witnessed stable rental values during 2013 baring few micro markets such as Cyber city in Gurgaon and sector 18 in Noida which witnessed an increase of 7% and 2.5% respectively, on year on year basis.

2014 Prognosis

The sentiment remains cautious, despite robust absorption in 2013. There is limited new stock that will be ready for fit outs in 2014 and we expect much of it to be deferred to the year after. On the other hand Delhi corporate are expanding and opening offices in Delhi due to availability of trained human resources, proximity to the central government and reasonably priced real estate. Due to the above, average rental values in Delhi NCR will remain stable and vacancy rate will fall marginally.

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