Decoding the Delhi NCR office realty market

Rohan Sharma, Associate Director – Research & Real Estate Intelligence Service, JLL India

At a time when we are celebrating the sustained growth momentum being seen in office space take-up and the renewed business confidence supporting future corporate expansion and growth, city-level vacancies naturally are a key point of discussion.

Recent data released by JLL shows that the vacancy levels in key office markets such as Bangalore and Pune have fallen to single digits amid rapid occupier space take-up, and a situation has arisen where immediate space requirements are struggling to be completed. Even future projected supply has seen pre-commitments and developers are now rushing to bring forward commercial project completions and dusting office projects that were earlier consigned to cold storage.

In this scenario, while Mumbai’s vacancy remains middling at a little over 20%, Delhi NCR presents a very different picture with its vacancy being close to 32.0%. In other words, nearly one-third of Grade A office stock here is vacant. This evokes images of vast tracts of empty ghost buildings at a city level. However, this image cannot be farther from the truth – in fact, NCR has seen visibly increasing leasing volumes over the last couple of years.

Delhi NCR is a throbbing office market with well-established submarkets and office corridors. While the suburbs of Gurgaon and Noida have taken the lead from the prime city in terms of development and consequently space take-up, the city itself remains a highly-preferred location for a certain class of occupiers like banking, financial services and many others who choose to establish their nodal headquarters/regional/liaison offices within the main city. This office corridor has buildings of largely an old vintage, with limited new development having been seen over the past decade. Vacancies in such quality projects remain in low single digits.

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To analyse vacancy, one needs to understand the concept of relevant stock/supply. Projects which are owned by well-known developers and featuring good design and efficiency parameters and are aptly located close to the respective city centres remain relevant to a large cross-section of the occupiers. Strata-titled, poorly-designed and remotely located buildings are low on occupiers’ priority lists, and are symbolic of developers’ over-exuberance leading to over-capacity.

Such locations, like Manesar, Greater Noida and the extended parts of NH-8 have large chunks of vacant office projects which remain peripheral in terms of occupier traction, except for the most cost-discerning ones. These corridors with strata-titled buildings attract much lower interest from occupiers, and some are struggling to hold on to their older tenants. This situation has, created significant project-level vacancies in even major office corridors such as the secondary business districts of Jasola and Saket in the SBD of Delhi, and office corridors such as Sohna Road and Golf Course Extension Road.

The prime office corridor of DLF Cybercity in Gurgaon currently has just 5-8% vacancy, while quality projects across the office markets of Noida and Gurgaon are currently running at full capacity with limited vacancies.

If one were to exclude the peripheral office corridors of Manesar, Greater Noida and the still-emerging Golf Course Extension Road, the city only loses 11% from its total Grade A stock of 95 mn sq ft, but the vacancy has significantly dropped to just 25%. In fact, if one were to further eliminate projects which are ‘dead stock’ (strata-titled, poorly designed buildings in prime office corridors), the vacancy for the superior grade projects stands at just around 20.0% – well within manageable levels.

Factoring in some structural vacancy in prominent projects which are currently under active discussion by occupiers and likely to find takers soon, the vacancy falls even further by another 100-150 bps. This low vacancy is further amplified when one looks at IT SEZs, which are currently the preferred space options for IT and ITeS occupiers who still drive over 50% of space take-up in the NCR office market.

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Polarisation of occupier demand is a phenomenon which is widely visible across most office markets in India, and creation of commercial assets in off-centre locations and older, poorly-designed and strata-titled projects will continue to see low occupier traction.

The underlying story of NCR office market remains one of healthy commercial office space take-up – and surprisingly, even a crunch of relevant, ready space for corporates, at least in the IT/ITeS sector.

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