NCR’s new business districts boast of over 30 mn sq ft of office space


Bottom Line: While Connaught Place (CP) retains its charm, areas like DLF Cybercity, Golf Course Road (GCR), Aerocity have emerged as new business districts, catering to the burgeoning IT/ITeS segment demand. Golf Course Extension (GCE) in Gurgaon is also emerging as a prominent office corridor in the region with huge supply pipeline slated to be completed in the next 3-4 years.

Rentals still highest in CP; no further growth possible

Occupiers prefer moving to new business districts

Tale of Two Cities! The name of the Charles Dickens novel set in 1859 sums up the commercial office space story in Delhi NCR over the last 20 years or so! 

First, let us talk about CP, one of the largest financial, commercial and business centres of New Delhi. 

The CP story is very old, one that spans about 50 years or more. It was NCR’s central business district (CBD). It is still probably the CBD. But office space in CP is stagnated. The new business districts such as Cybercity, GCR, Aerocity and GCE are growing at a rapid pace, meeting an enormous demand for commercial office space. Now, it’s a tale of two cities- Delhi and Gurgaon. 

The growth in asset size: The good thing about data is that it tells a story of its own. Let us look at the availability of commercial office space and how it has grown over the years. 

Coming back to CP, back in 1992 it had 9.06 lakh sq ft of commercial Grade A real estate stock. Steady growth has happened over the years. Around 2.46 and 2.3 lakh sq ft has been added in 2012 and 2014, respectively. The total Grade A stock at CP now stands at 2.6 million.

But now it is saturated. Hardly any new stock is coming up. Only a few new projects are expected to come in near future. There is no scope for big development as there is no available land. There is only scope for upgradation and redevelopment. 

When we look at the new business districts- Cybercity, GCR, Aerocity and GCE Road, the growth in office stock in these areas has been tremendous. 

IT/ITeS companies have been the main growth drivers in the commercial office space. The segment has driven 40-50% transactions in the top seven cities. Similar is the case of Delhi-NCR. IT/ITeS prefer large buildings and large floor plates. The stock in these emerging business districts has grown to meet this demand. 

A few things have worked in favour of Gurgaon. One is the relatively lower rentals. Metro connectivity, its proximity to the airport and a large residential catchment area have made it significant. Grade A supply office space has complemented the trend. 

According to our data, back in 1999, Cybercity had just over 1 lakh sq ft of Grade A commercial space. Today it boasts of almost 13.2 mn sq ft. With su ch a humungous growth and single-digit vacancy, DLF Cybercity could well be called the CBD of Gurgaon.  

GCR has a similar story. In 2002, it had less than 2.5 lakh sq ft. Today we are talking about almost 8.6 mm sq ft. All this stock has been added between 2002 and 2017, after which there was hardly any new stock addition. 

GCE Road has also witnessed tremendous growth in office space supply. From 2.15 lakh sq ft in 2009, today the stock of office space stands at a whopping 7.88 mn sq ft. 

Aerocity, a relatively new phenomenon, had 1.12 lakh sq ft of space six years ago. Today it is at 1.77 mn sq ft. 

These numbers indicate that there has been a shif t as far as Grade A office space is concerned. The office space is moving towards the new business districts. These emerging districts are now big in terms of new-age office space- modern buildings, Green Buildings and WELL standard buildings. 

CP still holds a pride of place as the CBD for its strategic location and its status value. But the growth has shifted elsewhere. 

The rental story

It has been observed that seen there has been a clear movement in occupier preference. This has resulted in rental growth across these micro markets. 

In the last six years, rentals at CP has tapered down slightly. From 230-255 INR/sq ft/month in 2013, it has comes down to 225-240 INR/sqft/month in 2019. However, rent in this bracket is still out of bound for IT/ITeS segment. 

Rentals in the emerging business districts have gone up correspondingly. In 2013 rentals at Cybercity stood at 75-78 INR/sq ft/month. Now it has gone up to 115-118 INR/sq ft/month. If we look at GCR, rentals have gone up from 86-87 INR/sq ft/month in 2013 to 90-100 INR/sq ft/month now. 

Aerocity is an emerging destination, but even it has a rental growth from 178-184 INR/sq ft/month in 2013, to 190-200 at present. 

Rental is still the highest in CP, followed by Aerocity, Cybercity, GCR and finally GCE. 

Horses for courses

There is a co-relation among demand, office space supply, affordability and rent. 

Even core IT/ITeS cannot afford rentals that are around 200 INR/sq ft/month or more. Their rental affordability is in the range of 90-100 INR/sq ft/month plus-minus 10%. So core IT space has moved to Cybercity and NH 8.        

Next is back-end office space for IT/ITeS and banking for which there is a huge demand. That is gradually moving to GCE Road as rentals in the range of 55-65 INR/sq ft/month suits them. The capacity at 7.88 mn sq ft complements the demand. 

When it comes to corporate occupiers, national and regional headquarters, CP still leads. While it has its status value, its positioning and strategic location at the heart of the city along with connectivity makes it important. But there is no further scope for growth. Hence, corporate occupiers, big banks, insurance companies, manufacturing, management consulting, telecommunication, co-working operators are preferring Aerocity and moving there. Here the rentals across offices are hovering around 200 INR/sqft/month and have a very low vacancy rate.

Demand driven growth escalation is evident in new business districts. Over the years, the developers have also understood the market and have added quality commercial spaces to these emerging locations. Delhi NCR is rapidly changing its contours as far as its business districts are concerned.  

By: Samantak Das, Chief Economist and Head of Research & REIS, JLL India

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