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There’s
nothing more wrong than perceptions that solidify into
“truth”, because the largest commercial projects in the
country are still coming up in these two metro zones,
and Chennai is at third place. Nor are developers and
multinational companies looking out for alternatives —
not just yet.
“The NCR,” says Ankur Srivastava, managing director of
international property advisers DTZ Debenham Tie Leung,
“has experienced the highest office space absorption in
its history during the first seven months of 2006.”
Already, according to the DTZ study, absorption has
crossed 5.1 million sq ft, and if the trend continues,
the forecast is that it could cross 8 million sq ft by
the end of 2006.
And to put that into perspective, take Delhi, which has
a total land area of (approximately) 16 million sq ft.
Already, therefore, the new absorption in the NCR has
been about a third the size of Delhi, and will equal
half the size of the city by the end of the year.
Imagine then, beyond the potholes and the poor roads and
poorer infrastructure, tier upon tier of construction
activity that is creating mega project spaces that will
(at the same pace) equal the size of Delhi in two years,
and double it in four years.
Phew!
For all that scorching pace of property development, it
isn’t the NCR but Bangalore that is leading as the
leasehold commercial office space absorption volumes in
the first seven months of this year have touched 7
million sq ft, which should easily match last calendar
year’s total absorption volume of 9.28 million sq ft.
Chennai, at third place, had an absorption level of 4.1
million sq ft last year, according to the DTZ study.
Internationally, Bangalore occupies the third slot in
office space absorptions, ahead of Delhi, with only
Tokyo (at 12.33 million sq ft) and London (9.96 million
sq ft) ahead of the Garden City.
With the supply-demand situation running to scarcity,
it’s hardly surprising that rentals, last year, rose by
an astonishing 44 per cent in the NCR. And while a
market correction to the tune of 30-35 per cent is
expected in some residential sectors in the NCR, “we’re
unlikely to see similar price corrections on the
commercial office space front”, argues Srivastava.
While some micromarket corrections may, in fact have
occurred, as, say, in Bangalore’s Whitefield which has
experienced a situation of oversupply, in most cases
“office space rentals have been inching up in almost all
major cities across the country, and in some of the
newer properties in Mumbai and Delhi unprecedented
rental highs have been achieved”, says Srivastava.
“This is primarily driven by the absolute dearth of good
quality buildings in all major CBDs (central business
districts).”
In a sense, that is why global companies like DTZ
Debenham Tie Leung have set up base in India, and in its
advisory capacity it is already negotiating or
transacting over 1 million sq ft of A-grade commercial
space in the NCR alone.
Interestingly, most realtors and realty advisers agree
that as much as 70-75 per cent of this demand (both in
the region as well as across the country) is being
driven by IT/ ITES companies.
“This is a very price sensitive market,” says Cushman &
Wakefields’s Sanjay Verma, “and so rents will firm up
around 10-20 per cent, and when the market achieves
scale, it will correct itself. If it doesn’t, the
business will simply flee to the Philippines or
elsewhere.”
Interestingly, since the Delhi Development Authority
controls land for commercial development in the city and
auctions it at very high value for (mostly) retail
development, it’s virtually impossible to find land for
commercial development at reasonable rates, or with
contiguous floor plates, says S K Sayal, CEO of G Alpha
Corp, which has recently tied up with Morgan Stanley for
investment in the company. “In terms of its development,
though, NCR is nowhere close to Shanghai,” he points
out.
But the NCR’s incipient growth is based on a few valid
premises, says Sanjay Verma. For one, in their second
phase of growth, companies based in the south have
started to diversify in search of human resources, and
the NCR offers immense opportunities there.
“Another trend is an increase in supply, and with the
augmentation of infrastructure, it’s becomingly
increasingly popular.”
In the NCR, therefore, with Delhi unable to feed the
supply side — exceptions such as the Eros Corporate
Towers are leasing at Rs 115-250 per sq ft as against
the usual Rs 30-40 per sq ft in Gurgaon and Noida — the
largest growth has been in Gurgaon, which accounted for
63 per cent of commercial space absorbed (3.2 million sq
ft in 2006, to date), the largest of the companies
utilising those spaces including IBM, SAP, Satyam and
PWC.
Noida absorbed 1.4 million sq ft and prominent companies
making forays into office space include Hewitt
Associates, Momentum Technologies, Fiserv, HCL
Technologies and Freescale.
Within Delhi, the central business district or Connaught
Place absorbed 2 per cent of office space, while the
secondary business district (Nehru Place, Bhikaji Cama
Place, Basant lok and Saket) absorbed 4,06,850 sq ft.
The reason the industry does not see any price
correction setting in any time soon is because
commercial office supply is demand led (unlike
residential supply, where there is definitely
speculation), and because a major thrust is being
provided to special economic zones in the region.
“Gurgaon in definitely ahead in the curve,” says Verma,
“but because developers’ interest has been caught by
Noida/ Greater Noida, that has corrected itself.”
Interestingly, DTZ’s Srivastava points out that the
growth (185 per cent in the NCR alone over last year)
isn’t going to be arrested in a hurry. “As the IT/ ITES
sector is expected to grow by 30-35 per cent in the next
3-5 years, that can also be used as a benchmark for
estimating the growth of commercial office space in the
real estate sector,” he says.
“With a conservative average of 75 sq ft of office space
per employee, if the IT/ ITES industry adds another 1.5
million staff till 2010, we are talking about at least
110+ million sq ft of IT/ ITES category space being
added in the next four years.”
That growth will occur, almost without exception, in
Bangalore, Chennai, Hyderabad, NCR, Mumbai-Pune and
Kolkata. The highest spurt? “The NCR and Chennai,”
claims Srivastava.
And part of that explosion will be managed by
international companies like DTZ that, says Srivastava,
“will see higher standards of disclosures and
information sharing” on the one hand, and a “major
change in the overall quality of construction and
project management practices”.
Shanghaied to Delhi, did anyone say? |
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