Delhi NCR: Grade A Office
Demand
The period ending 4Q10 witnessed low to moderate activity levels in the CBD and SBD of Delhi NCR. The CBD, with its low vacancy levels, continued to cater to small office queries, while the SBD with significantly more office stock, catered to the larger corporate office space demand. The increased connectivity of the CBD and SBD with other parts of the city and the suburbs through the Delhi Metro Rail has encouraged demand for new office space in Delhi and its suburbs. The scarcity of good-quality office space in the CBD led to a spillover effect in the SBD, primarily in the business districts of Saket and Jasola. Both business districts have considerable vacant space, and with good connectivity and relatively affordable rents, they have generated a positive response from occupiers during the quarter.
The CBD witnessed negligible leasing activity in 4Q10. With a net absorption of 1,076 sq ft (100 sqm), the vacancy level dropped down marginally from 1.2% in 3Q10 to 1.1% in 4Q10. The SBD witnessed a moderate level of activity, resulting in a net absorption of 174,758 sq ft (17,000 sqm). Consequently, vacancy dropped down to 16.0% in 4Q10 from 17.6% in 3Q10. Overall, vacancy in Delhi declined to 11.4% in 4Q10 from 12.5% in 3Q10, with majority of the absorption concentrated in the SBD.
Key transactions in the prime city in 4Q10 included:
- Bose Corp, leasing 18,850 sq ft (1,751 sqm) at Salcon Aurum in Jasola Business District, SBD; and
- Tata Telecommunications, leasing 17,000 sq ft (1,579 sqm) at Rasvilas in Saket, SBD.
Supply
The only new supply in addition in 4Q10 was witnessed in the SBD, where Omaxe Square became operational in the business district of Jasola. Majority of the development (nearly 85%) was already leased to Wipro. The total commercial stock in the CBD stood at 2.13 million sq ft (197,745 sqm), while the SBD office supply reached 4.8 million sq ft (449,001 sqm).
Asset Performance
Although business sentiment remained positive, the lack of vacancy led to a near negligible leasing activity in the CBD. Transactions were limited to a churn in the existing stock, resulting in rents remaining stable at INR 228 per sq ft per month at the end of 4Q10. On the back of a revived occupier interest, the SBD micro-market saw a marginal appreciation in rents to INR 145 per sq ft per month, up 3.6% q-o-q. Grade A office rents in the CBD remained stable at INR 220–250 per sq ft per month. The stability and firming up of rents have been observed after a prolonged period of seeing a rent reduction, though the rental rates are still currently 40–50% below the market peaks of 2Q08.
12-Month Outlook
With rents holding firm in the CBD and showing a marginal rise in the SBD in 4Q10, both markets seem to be showing improvement after hitting their bottom levels in 3Q10. Landlords are expected to increase quoted values to take advantage of improving market sentiments, while occupiers will try to capitalize on the still attractive rental prices. The CBD will witness an active churn in the existing stock, while the SBD will seek to build on the positive sentiment of the current quarter with an active leasing market. Overall, the vacancy rate is set to drop, while rents will be pushed upwards in 2011.
Delhi: Prime Retail
Demand
With the revival in business confidence and the positive investor sentiment combining to have the economy poised towards a higher growth rate, large format retailers have initiated plans to align their growth strategies accordingly. There was an increased refocus on expansion plans throughout the region, but it got dampened by limited choice in existing malls restricted to key popular ones. Retailers continued to search for properties in newly launched projects and projects under construction in Delhi and its suburbs.
The average vacancy level across all micro-markets was reduced marginally from 26.4% in 3Q10 to 26.1% in 4Q10. Net absorption in the NCR retail market was observed at 201,576 sq ft (18,727 sqm) as compared to 548,356 sq ft (50,994 sqm) recorded in the previous quarter. The level of absorption in 4Q10 was lower as compared to that in 3Q10 as some projects experienced operational delays. Also, a good amount of pre-leasing activity was observed in ambitious retail projects that were still under construction, clearly outlining the fact that retailers were also preferring newly launched projects as compared to existing ones.
Supply
The Delhi NCR retail market witnessed only one mall completion in 4Q10, which was located in the suburbs. The Omaxe City Centre Mall, a 200,000 sq ft (18,581 sqm) development on Sohna Road by Omaxe Group, became operational with a less than 50% occupancy level. Its anchor tenant is EasyDay, a Bharti Walmart hypermarket format.
Asset Performance
A slightly positive sentiment in rental expectations seemed to have percolated from Prime South to the other micro-markets. Overall, rents have remained stable from 3Q10 to 4Q10. The rental correction arrest observed in the past quarter remained largely the norm, although leasing activity did not show any marked improvement. Positive expectations at the landlord’s end on account of a slight increase in tenant queries held rents firmly in place in 4Q10. Prime Delhi rents ranged between INR 200 per sq ft per month and INR 250 per sq ft per month.
12-Month Outlook
The next 12 months are expected to witness an upswing in the number of tenant queries and lease transactions by retailers executing their expansion plans. Malls at good locations, constructed by experienced developers and with a professional mall management team for active tenant mix management will maximise these opportunities and record a good rate of absorption. A tussle between retailers scouting for properties and developers/landlords attempting to maximise their gain through such opportunistic demand is on the cards over the next couple of quarters. A low supply–high demand spectrum in Prime South could provide an upward push to rentals. However, with the potential oversupply situation in Prime Others and the Suburbs, rents may be expected to suffer on account of downward pressure.
