Delhi NCR Commercial Real Estate 2012
Best Performing Areas
In 2012, Sohna Road in Gurgaon saw very high levels of office space leasing and absorption due to its affordability. Many comparable options in terms of quality were at significantly higher price points (with rentals above Rs 70/square foot). The good quality of office property supply and attractive rentals in the range of Rs 30-40/square foot worked in Sohna Road’s favour. Its appeal as a business destination was magnified by the presence of good retail developments in the vicinity and the availability of comparatively affordable, ready-to-move residential options.
DLF Cyber City withstood all challenges and continued to build on its reputation as the most sought-after location for leading businesses in the NCR belt. The location’s USP of being a neighbourhood populated by leading MNCs was sufficient incentive for many leading international corporates to choose this location for their office space requirements. The available options came at significantly high price points (above Rs 70/square foot). However, DLF Cyber City rode tall on the prospects of the impending infrastructure upgrade in the form of the soon-to-commence rapid metro services and road improvements.
By Santhosh Kumar, CEO – Operations, Jones Lang LaSalle India
In Delhi, Saket was the unchallenged hotspot for office space leasing in 2012. This area saw a healthy supply and absorption of office real estate, despite significantly higher rentals. The factors that worked for Saket were:
· Its existing status as one of the most happening and developed locations in Delhi
· Excellent connectivity to the rest of Delhi and Gurgaon/Noida
· High quality of office property supply
Worst Performing Areas
In terms of office space absorption, the following locations performed rather badly in 2012:
· NH8 (beyond Rajiv Chowk) – Though office space supply and affordability were not issues, supply there failed to be absorbed because of poor connectivity. The inferior road infrastructure caused alarmingly high levels of traffic congestion, compounded by frequent waterlogging.
· Golf Course Extension – This area had limited supply which nevertheless saw low levels of absorption because of this region’s lack of ready-to-move in residential options. Most of the residential supply in this area was under construction in 2012, resulting in negative decision by corporates in terms of leasing office space there.
· Greater Noida and Sector 62 - These regions in Noida definitely took a back seat in terms of office space absorption in 2012. Sector 62 suffered because of its distance from CBD. Although it had ready supply and rentals were affordable and promising when compared to other options, the difference in price points was not cause the supply there to overrule the options available in other prime locations of Noida (such as Noida Expressway and CBD, which offered multiple advantages in terms of good quality supply and better locations) even though the price points in these areas were higher. Greater Noida was also unable to perform because of the existing supply of quality office spaces along Noida Expressway. Most of the absorption was more or less along the Expressway till Sector 142.
Ø Delhi NCR Retail Real Estate 2012
In 2012, the prospects for retail real estate in Delhi NCR were marred by a very little new supply, and the inferior quality of the supply that did exist. Almost all the current malls in NCR are older than half a decade or more. Nevertheless, some of the prime malls continued to perform and even picked up in comparison to 2011.
However, most of the existing malls performed poorly in 2012, owing to poor location, inferior mall management, lack of aggression in brand churning, etc. Quality retail space witnessed decent levels of absorption with little vacancies, while poorer quality retail space could not be absorbed.
The Best Performers Of 2012
In South Delhi, the best-performing malls of 2012 were Select City Walk at Saket and DLF Promenade and DLF Emporio in Vasant Kunj. In West Delhi, Pacific Mall was the sole performer among a number of others shopping complexes. In East Delhi, Shipra Mall and Mahagun Mall showed encouraging performances. The Great India Place (GIP) continued to be the star performer in Noida, while Ambience Mall was the only centre that could distinguish itself among the huge supply of malls in Gurgaon.
Most of these malls have been performing consistently well and have a lot in common that can be attributed to their success.
· Professional mall management: All these malls have professional and extremely efficient mall management teams that closely monitor the day-to-day operations and take crucial strategic decisions.
· Good brand / tenant mix: Regular churning of brands, or inclusion of leading brands and expulsion of non-performing brands, enables these malls to maintain their appeal and viability.
· Ownership: All these malls are developer-owned malls and not strata titled. This enables the mall owners / developers to exercise full control on mall operations and functioning and to target the best-suited brands.
· Revue sharing: Manny of these malls have shown consideration in their rentals and have started to offer the revenue share model, which is a win-win situation for both the developer and the brand. On one hand, it increases the affordability of spaces and on the other, delivers optimal revue to the developer for performing brands.
· Positioning: All performing shopping centres in 2012 were able to uniquely position themselves as premium / luxury malls within catchments that cater to the affluent section of society. Their massive size and strategic locations, coupled with good connectivity and access, were also critical factors.
· F&B, Leisure: The food and leisure options that these malls offer were distinct differentiators, leading to consistent and increasing footfalls.
Thanks to these factors, none of the mentioned malls saw any vacancy at all in 2012 – and, in fact, have a long queue of brands lined up for entry.
The Worst Performers Of 2012
Without actually naming them, most of the malls in West Delhi, North Delhi, Gurgaon and Noida performed badly in 2012, with marginal or no improvement in absorption levels. Some of these malls are strata titled properties in which the developers have sold the units to investors whose decisions are governed solely by capital gain, with no regard to what works best for the mall. This resulted in very minimal decision powers of developers. These malls had a poor tenant mix, with no brand churn. Most of these malls are not professionally managed.
Malls in North and West Delhi, and also some in Gurgaon, could not perform due to oversupply, poor quality, lack of strategic location and no USPs with which to position themselves.
Ø Delhi NCR Residential Real Estate 2012
The on-going liquidity crisis, high interest rates and persistent inflation levels kept the residential property market in NCR subdued in 2012. There were comparatively lower transaction volumes, though some of the micro-markets clearly outperformed the rest and remained promising bets for investors.
Gurgaon’s residential market performed decently in 2012, but the performance was not uniform all across. There were high levels of unsold inventory in some of the projects, while many others sold exceedingly well. Golf Course Road, Golf Course Extension Road and Sohna Road achieved handsome appreciation in both capital values and rentals. These regions can be classified as the best performing pockets in Gurgaon for 2012 in terms of sales volume and appreciation achieved.
The factors that worked for them were their good connectivity with New Delhi through the six-lane NH-8 and MG Road, providing quick and easy access to the New Delhi International Airport, and the 14 kilometre Southern Peripheral Road (SPR) which covers all the major developments in this part of Gurgaon and connects MG Road and Golf Course Extension Road with NH-8.
However, the most sensational performer in NCR region for 2012 was Dwarka Expressway. Its proximity to the international airport and the proposed diplomatic enclave, along with its rapidly evolving infrastructure and good connectivity with west Delhi and Gurgaon continued to work in this region’s favour. There was high level of interest by investors in this region, resulting in price appreciation and high sales volumes in 2012. At the start of the year, projects were pegged at around Rs. 4000/sq.ft. and were at Rs. 7000/sq.ft. towards the later part of 2012.
This price appreciation did hurt the region’s affordability tag, which used to be its USP, and thus alienated a significant section of end users. The region also saw a high level of supply to tackle the absorption by investors.
Residential demand on Golf Course Road was driven by heavy demand from corporates. Projects there witnessed an average appreciation of around Rs. 1500–2000/sq.ft., thereby taking the price point to an average of Rs. 12000-15000/sq.ft.
Golf Course Extension was also a hot destination for residential real estate in 2012. Projects like Pioneer Park and the IREO projects saw capital appreciation of around Rs. 1500- 2000/sq.ft., thanks to this area’s vicinity to Golf Course Road and various other locational advantages. With good quality supply under construction and more affordable options, Golf Course Extension witnessed a high level activity from investors looking for lucrative returns over an investment period of 3 to 4 years. However, it did not find a lot of traction with end users looking for ready-to-move residential options, as most of the projects were under construction in 2012.
Sohna Road saw very decent residential sales levels since it is more affordable than Golf Course Road and Golf Course Extension and had a steady supply of ready-to-move units to offer. This made it a location of choice for end users. Projects on Sohna Road appreciated by around Rs. 1500-2000/sq.ft., bringing price points to the current average of Rs. 8000-9500/sq.ft. Sohna Road also benefited from the cyclical impact of high-level leasing of office space by companies to base their office out of the area. This, in turn, generated the demand for residential options which further augmented the office leasing activity.
Yet another region whose residential market did well in 2012 was Noida, in particular Noida Extension and Noida Expressway. The Noida Extension region was mainly driven by end users due to the affordability of available options. Some of the projects in the Extension area achieved an appreciation of 25% over their start-of-year values. Noida Expressway was able to maintain its appeal due to its positioning as a commercial hub and its affordability when compared with Gurgaon or Delhi. The demand was equally balanced between investors and end users. Overall, Noida’s residential realty market achieved an appreciation of around 20% in 2012.
The Delhi residential property market did not see very impressive action, largely due to exorbitantly high rates and very limited supply. Capital value appreciation remained lacklustre - price points in South Delhi either remained stagnant or even witnessed marginal decrease. West Delhi did not fare much better. Appreciation was moderate, but better than south and east Delhi. Major infrastructural reforms such as improving road infrastructure, the burgeoning affluent section of residents here and the rising income levels of the general population were points in its favour.
In other NCR areas such as Faridabad, performance was not up to the expectation. Neharpur was unable to build on its past record and demonstrated very minor appreciation in 2012. On an average, appreciation in Faridabad’s residential market maxed out at around 10% in 2012.
PROJECTIONS FOR 2013
Ø Delhi NCR Commercial Real Estate 2013
In 2013, the areas which are likely to perform best in terms of office space absorption are:
Sohna Road: This region will continue its appeal to office space occupiers in 2013 and beyond. Having already positioned itself strongly as a de-rigueur destination for office spaces, this region will see an increased influx of companies. Rentals in Cyber City are likely to be revised upward, placing it out of the budget appetites of many IT / ITeS companies whose comfort range of rentals is generally between Rs. 30-40/sq ft. This will also result in a closer consideration of Sohna Road as an office space destination for many more corporates already based out of Cyber City. The healthy supply of affordable, ready-for-occupation residential options will ensure a sustained demand for office spaces in this region.
Noida Expressway: Good rental affordability and relatively comfortable access to East and South Delhi, Faridabad, Ghaziabad and the population of Noida will continue to work well for this region in 2013. IT / ITeS companies with rental budget concerns will increase their focus on Noida Expressway for their office space requirements. Better infrastructure than in Gurgaon and more affordable housing will provide a clear advantage.
Ø Delhi NCR Retail Real Estate 2013
No significant quality retail supply is likely to hit the market in 2013. Though Mall of India and Gardens Galleria are scheduled for launch in the late quarters of 2013, there is every possibility that their launch will actually slip into 2014. Select City, DLF Emporia and Promenade, and Ambience Mall will continue to lead the bandwagon and exhibit the best footfalls and sales figure in 2013.
Most of the malls in Noida, East and North Delhi and to some extent West Delhi will continue to languish under high vacancy, though the vacancy levels may reduce from current levels due to the lack of new supply.
Ø Delhi NCR Residential Real Estate 2013
In 2013, the outlook remains promising for Dwarka Expressway because of its infrastructure advantages and the locational benefits it enjoys. Dwarka Expressway has been able to successfully withstand the heat that many other areas and pockets of NCR have faced. The price sustainability and appreciation trends of the recent past, and also its relative affordability, will continue to maintain investor interest and confidence.
Other important areas to watch out for in 2013 for residential realty will be New Gurgaon and Manesar. The increase in commercial developments, its developing infrastructure, continuing affordability and the proposed connectivity via Metro and the Expressway will put this region on radar in 2013.
Noida Extension and Noida Expressway will continue to generate interest. More and more IT / ITeS companies target Noida Expressway for its rental affordability when weighed against the upward rental trends that Cyber City in Gurgaon will display. The Noida Expressway will further increase its appeal as a residential hub. The comparatively better infrastructure, easy accessibility and availability of affordable options will appeal to both investors and end users. Supply in this region will not be an issue, and good levels of absorption with appreciation in capital values are a high possibility in 2013.
Tips To Real Estate Investors And End Users For 2013
The RBI has instructed scheduled banks to not allow a rollover of loans given to real estate developers into next financial year. This will mean that developers will see an urgency to dispose of their unsold inventory in order to be able to raise funds to pay back their loans. This holds the potential for a major correction in residential prices in the NCR region.
Moreover, the RBI has already given a cue of likely rate cuts in future monetary policy review. This will help in easing the liquidity situation. It is highly advisable for prospective buyers not to hurry their purchase decisions, but to wait and watch how the situation unfolds by the end of first quarter of 2013.
By Santhosh Kumar, CEO – Operations, Jones Lang LaSalle India
