INRnews - Indian Real Estate News

Gurgaon accounted for about 63% of the total absorption of commercial space in the first six months with a total of 3.2 million sq ft. Over 4.4 million sq ft of office stock has been leased over the past 12 months. Due to the increased demand and shortage of supply in the short term, rentals have increased by 44% in the past year in this region. Notable transactions in Gurgaon this year included IBM leasing 500,000 sq ft, SAP leasing 100,000 sq ft, Satyam leasing 85,000 sq ft and PWC leasing 75,000 sq ft. IBM currently has a total commitment of about 8,00,000 sq. ft. of leased space in Gurgaon.

At the same time, the Central Business District (CBD) and Secondary Business Districts (SBD) are attracting corporates due to their improved connectivity and attractive location. The CBD (Connaught Place) with limited supply of Grade A space has witnessed absorption of only 81,800 sq ft this year. Banks, financial institutions and consultancy firms with a high consumer orientation dominate this demand. Due to limited supply and increasing commercial demand, rental values have increased by as much as 51% in the past one year and are touching Rs 250 per sq ft (in some select buildings). Key leasing transactions in the past quarter included Thales taking up 12,000 sq ft and Times Now taking up 8,000 sq ft.

The SBD including Nehru Place, Basant Lok, Vasant Vihar, Saket and Bhikaji Cama Place witnessed approx. 406,850 sq ft of office space leased. Because of increased commercial demand, rentals have substantially increased in SBD as well, by as much as 60%. The completion of the 200,000 sq ft Eros Corporate Towers has increased accommodation options in the area.

Noida has absorbed approx. 1.4 million sq ft this year itself. Noida has traditionally housed larger occupier owned operations of 100,000 sq ft plus. Most firms have taken up space in grade B industrial buildings. Some IT / ITES companies have preferred to go to institutional sectors in Noida, usually constructing their own buildings. There is now an increasing trend of Grade – A commercial buildings being developed in Noida. Notable transactions this year in Noida included Hewitt Associates leasing 175,000 sq ft in, Momentum Technologies leasing 100,000 sq ft, Fiserv leasing 100,000 sq ft, HCL Technologies leasing 271,000 sq ft and Freescale purchasing buildings measuring 205,945 sq. ft.

Numerous factors have contributed to this increasing commercial demand in the NCR region. NCR has edged over most Indian cities in the demand for commercial property due to its improved connectivity, better infrastructure and availability of skilled human resource. Because of the Commonwealth Games, transportation, hotel accommodation, security and all other
supporting infrastructure are getting a boost. The market for information technology (IT) is the highest in the city of Delhi.

The MCD demolition drive of commercial properties in residential areas had also added marginally to the continuously increasing commercial space demand. Lack of adequate supply in the CBD and SBD have resulted in a shortfall, which could see increased pressure on current stock in the short- medium term.

Future outlook
The commercial (office) market is dominated by the IT/ITES sector that accounts for approximately 80% of the total commercial space absorption in India. As the IT/ITES sector is expected to grow by 30-35% in the next 3-5 years, the same can be used as a basic benchmark for estimating the growth of commercial office space real estate sector. With a conservative average of 75 sft of office space per employee, if the IT/ITES industry adds another 1.5 Million staff till 2010 (based on most consensus estimates), we have about at least a 110+ Million sft of IT/ITES category space being added in the next four years. Apart from IT, there are other office demand drivers and we believe that the A-Grade office space demand from the top 6 Indian property markets i.e. Bangalore, Hyderabad, Chennai, Mumbai-Pune, NCR and Kolkata would be in excess of 150 Mn sft between 2006 - 2010.

“However, this percentage increase may not be witnessed uniformly in all the cities. Cities like Bangalore have already experienced significant absorption of IT/ITES space in the past 3-4 years” says Srivastava. “Although the increase in commercial space absorption in next 3-5 years in these cities might be substantial in absolute terms, but in percentage terms the increase may not be that high (as the base is very high). On the contrary, cities like Kolkata and Pune who have not yet witnessed huge absorption of IT/ITES space may exhibit greater increase of office space absorption in percentage terms (as their base is lower) and not so in absolute terms. “The NCR region and Chennai are already being seen as strong destinations and the Delhi A-Grade office space take-up numbers for 2006 certainly seem all set to hit an all-time high.”