Suburbs aid Delhi-NCR’s growth

It is important to observe how the Delhi National Capital Region (Delhi-NCR) real estate markets have performed over the past year or so. All three sectors - office, retail and residential - are witnessing growth because of the suburban towns surrounding the prime city. The reasons for this are the large untapped development potential in the suburbs and the substantial financial viability and affordability that are available to both developers and end-users in these locations.

There was a period of stagnation in 2012, followed by office space occupiers adopting consolidation measures. The global economic signals were sluggish and the impact was most visible on Delhi NCR office market that is driven primarily by the IT sector.

As Europe and US are in the throes of a slowdown, office demand has dipped and, as a result, 2012 recorded the lowest absorption volumes in eight years at 3.8 million sq ft.

Occupiers of office space were looking at portfolio rationalisation and cost control measures such as relocation and/or consolidation and space inquiries were the dominant aspect of demand in the office markets.

 It is pertinent to note that since 2009, the annual new supply of commercial office space has caused the total stock to rise by 70% (from end-2009) to nearly 70 million sq ft at end-2012, says JLL India in its latest report. Previously, from 2006 to 2009, stock had more than doubled to more than 40 million sq ft by end-2009. This points towards new supply also showing a slight correction, as demand levels remained steady.

Demand levels started showing an improvement over the first half of 2013, with fresh absorption already at 62% of 2012 levels. Gross transaction volumes also showed an increase and were nearly 1.8 million sq ft during 2Q13, compared to 0.98 million sq ft in 1Q13, a substantial 84% q-o-q improvement. The prime office sub-markets are still the suburbs of Gurgaon and Noida, says the report.

Within these sub-markets, DLF Cyber City and Sohna Road in Gurgaon and the Noida-Greater Noida Expressway in Noida are the most sought after office destinations. The office markets of Delhi (CBD and SBD) remain marginal players in terms of fresh supply and absorption volumes.

The Delhi NCR retail sector has a unique character - the market, with its combined per capita incomes being one of the highest in the country provides every retailer with a healthy consumer base.

For analysis, the JLL has segregated organised retail in this market into the Prime South (South Delhi retail mall developments), Prime Others (mall developments in the north, west, east and the rest of Delhi) and Suburbs (Greater Noida, Noida, Ghaziabad, Faridabad and Gurgaon) sub-markets.

Retailers have over recent quarters been aligning their growth strategy with a focus on their business margins and expanding in previously untapped markets. The focus was to grow selectively in existing prime retail assets or select new and under-construction projects that offered the optimum advantages of location, brand visibility and a pure leasehold ownership model. This led to slow absorption volumes that were the norm across most quarters during the past 18 months.

Only first quarter and fourth quarter of 2012 saw moderate absorption, primarily because of new project completions in the suburbs that became operational with moderate pre-commitment levels. The period under consideration was marked by two major trends. One, retailers were downsizing the number of stores, closing those that were recording low business volumes. Large format retailers were also looking at reducing their typical store sizes.

Mall management teams, on the other hand, became active in tenant management, undertaking periodic tenant performance reviews and letting go low-performing tenants for better prospects.