Gurgaon to see number of lease renewals in office spaces in 2014&15: Report

First wave of occupiers, will have to pay rentals at present market rates that are significantly higher after the renewal of leases: Colliers International

Gurgaon is expected to witness significant number of lease renewals in office spaces 2014 and 2015 as companies that had set up offices in 2004 - 2006 are approaching the end of their lease terms .

These companies -- the “ first wave” of occupiers -- will have to pay rentals at present market rates that are significantly higher after the renewal of leases, according to a report by Colliers International.

“These companies will need to choose between staying at the current location at higher rentals and relocating to peripheral micro-markets offering cheaper rentals. Gurgaon will thus witness further segmentation of micro-markets in cost terms this year,” the report added.

With 8.31 million sq ft of cumulative office leases, Delhi-NCR is the second highest market in terms of office space absorption after Bengaluru. And out of the total office leases, 70% of the space was leased in Gurgaon, 23% in Noida and the rest 7% in Delhi.

IT/ITeS companies were the major occupiers, contributing 50% of the total absorption, followed by Engineering and BFSI, together accounting for 25% of the total absorption, the report added.

In 2013, in Delhi-NCR commercial space absorption increased by 22% compared to last year. Of the 6.44 mn sq ft total new office inventory space added in 2013, only 12% was located in Delhi and the remainder was evenly split between peripheral micro markets of NOIDA and Gurgaon.

Currently, the vacancy is 19%, marginally higher from 18.5% in 2012.

On rentals side, there was a decline of 3% y-o-y in Delhi, while the rentals in Gurgaon and Noida were stable in 2013.

Joe Verghese, managing director ,  Colliers International “Inspite of poor market sentiments, the commercial real estate market in Delhi NCR witnessed 22% more absorption in 2013 compared to the previous year. Delhi NCR bucked the downward trend seen in all other major metros. Even developers, sensing muted demand for office space launched minimal new commercial projects in 2013.”

In 2014 we expect Delhi to follow the national trend and witness subdued demand, at least until the national elections, he added. There is limited new stock that will be ready and available in 2014. Due to the above, average rental values in Delhi NCR will remain stable and vacancy rate will fall marginally.

Most of the new supply is expected to come up in Noida which will put rentals under downward pressure. But locations such as the Noida Expressway may buck the trend as corporate prefer to locate along this stretch which offers superior infrastructure and quality of buildings.