Covid-hit Gurugram falls behind on office rentals
GURUGRAM: Landlords and tenants of commercial office spaces in Gurugram are renegotiating rentals as they seek to overcome the fallout of the coronavirus pandemic on the office leasing market in the city that has, in recent years, become the Indian base of some of the world’s biggest companies.
Most tenants, especially middle-rung companies, are seeking waivers and deferment of rental payments to tide over the impact of the public health crisis that forced a 68-day national lockdown till May 31 with some restrictions remaining to date. Landlords have no option but to renegotiate in the backdrop of an emerging trend of desperate tenants surrendering office space in neighbourhoods such as Udyog Vihar, Sohna Road, even Golf Course Road, a premium address
The impact of the pandemic has been so drastic that Gurugram was pushed to second place for the first time in seven years in office leasing activity in the first half of this year, according to a report by the property consultant Knight Frank. According to the report, more office space was leased in Noida in January-June as supply was available at much lower rentals in the satellite city.
According to the report, 0.92 million sq ft office space was leased in Gurugram in the first six months of 2020 compared with 1.08 million sq ft in Noida. Noida outperformed Gurugram in terms of overall transactions and became the highest contributor to gross leasing in the National Capital Region market, posting a year-on-year increase of 86%. It came against the backdrop of a 45% decline in gross leasing by area in the NCR in the first six months of 2020. “Demand for office spaces has been growing in Noida mainly due to relatively high rentals in Gurugram’s established office space locations such as DLF Cyber City, Golf Course Road, MG Road and Udyog Vihar,” Knight Frank said, adding
that better roads, improved metro rail connectivity and competitive rentals helped Noida pip Gurugram.
Over the years, Gurugram has emerged as a powerful magnet for both domestic and multinational companies as available commercial space in New Delhi shrank and rentals soared. Today, it is the India corporate base of companies ranging from insurers Aviva and Max Life to consultant McKinsey and beverage maker PepsiCo, and home to the factories of automakers Maruti Suzuki and Hero MotorCorp, and airlines IndiGo and SpiceJet.
The property market in the entire NCR was already downbeat when Covid-19 struck, forcing the lockdown that forced all but essential product manufacturers and service companies to close to prevent the spread of the disease. The real estate leasing market took a big hit.
The office space market in Gurugram is categorised into Zone A, which includes MG Road, National Highway-8, Golf Course Road and Golf Course Extension Road; Zone B, which comprises DLF CyberCity, Sohna Road, Udyog Vihar and Gwal Pahari; and Zone C, which includes Manesar. Rentals in Zone A , ranging from ~100 to ~160 per sq ft, have declined by 15% and in Zone B, which are between ~80 and ~135, by 3%. Rents in Zone C, at between ~25 and ~35 per sq ft, are unchanged. In coming months, rentals are likely to decline in all three markets by an additional 15% to 20% and barring a few developers, who have top corporate names as tenants, the leasing rates will rationalise, real estate industry experts said.
In the city and across the NCR, companies are seeking to cut real estate costs and put expansion plans on hold; layoffs and workfrom-home have reduced their office space requirements. “All this has in turn resulted in little correction in rentals in the short term,” said real estate consultant Vinod Behl.
As demand for office space has declined, companies have put lease extensions on hold and are negotiating hard, said Kamaljeet Singh, vice president of Bestech Developers, which owns and operates multiple commercial buildings in the city. “We are seeing a 20 to 25% correction in office rents as clients either want to reduce the space they are occupying or the rent they are paying.”
One of the largest office automation companies on Sohna Road, which leased space from Bestech, has ceased operations in Delhi-NCR and is relocating to Bengaluru, Singh said. “Another IT/telecom company says that they haven’t opened the office in the last four months and want a reduction in rent and maintenance,” he added.
“Real estate and energy accounts for 65% of the cost of IT/ ITes (information technology/ information technology-enabled service) companies and since they are under duress, the first thing to put on the block would be offices if rents are not reduced. Large companies in Cyber City and on Golf Course Road can weather the storm but middlelevel companies are vacating the space,” said real estate consultant Ramesh Menon.
The realignment of office space has also had a fallout on residential housing. “Many small and medium firms have vacated their spaces. This is also impacting the housing market badly as demand is going down,” said Ashok Yadav, a property dealer.
IT companies in Gurugram, a majority of whose employees are still working from home, are evaluating the situation on the workfrom-home practice and the future of remote working, according to the Haryana chapter of the National Association of Software and Service Companies (Nasscom). “Covid 19 has accelerated the trend of remote working and it will increase in time to come. However, after five months it is being realised that fatigue is setting in and physical interaction and an office environment is required for enhanced productivity ,” said Vinod Sood, who chairs the chapter.
Like him, others too see a glimmer of hope. “The market will bounce back,” said Pradeep Agarwal of Signature Developers. “The jobs generated in the next 10 years will require office space and work-from-home is not going to happen forever,” he said.