Office rentals in NCR slip by over 5% as companies relocate to cheaper locations

NEW DELHI: Office rentals in clusters of high-profile companies in Delhi-NCR have reduced by more than 5%, highest among top cities, following a move by companies to relocate to a cheaper location within the region, according to leading real estate consultants and brokers.

The rentals dipped even as landlords across markets exhibited flexibility in providing increased rent free periods, reduced rental escalation and providing fully furnished workspace to prominent occupiers to reduce their net outgo.

At 28%, NCR has the highest vacancy among top 7 cities, which gives tenants an opportunity to bargain.
While rentals at Bengaluru, Hyderabad, Pune and Chennai have either remained stable or increased, the lease rates in Mumbai have reduced by 1%.

DLF, which operates a large chunk of the grade A office space in NCR, escalated rentals by 5%- 7% on a year-on-year basis, but has said it may not happen this year.

Consultants said that with rentals being half at Noida in comparison with Gurgaon, many offices have started relocating to save costs.

“The pandemic has seen enhanced cost-conscious occupiers, making Noida more preferable to Gurugram at the macro level. Rentals for comparable properties, the cost of living is also lower in Noida, thereby reducing the cost of talent significantly at the entry and marginally at mid-levels,” said Avishek Banerjee, Partner – Business Consulting – Real estate sector, EY India.

According to a JLL report, except for Bengaluru which witnessed a marginal increase in rents, office rents in Q3 2020 vs Q2 2020 remained stable across all markets under review.

“If you consider the rental fall in Gurgaon, it has fallen more than 5% as companies have started moving to Noida. Rental at Golf course road in Gurgaon is now Rs 75 per square feet against Rs 95 per square feet in pre pandemic era. In Noida, companies get space at less than a dollar per square feet, which is driving the demand and impacting the rental prices in other regions of NCR,” said Anckur Srivasttava, chairman of GenReal Property Advisers, a real estate advisory firm.

According to a Knight Frank report, the recovery in office transactions and new completions helped rental values remain stable in Bengaluru (4%) followed by Hyderabad (2%), Chennai (0.5%), and Pune with 0% Year-on-Year growth (YoY).

NCR and Ahmedabad have seen a decline of 5% in Grade A office space rental.

The JLL reports points that increased office space consolidation and optimisation strategies of corporate occupiers resulted in subdued net absorption levels, which could not keep pace with new completions.

This resulted in overall vacancy increasing from 13.1% in Q2 2020 to 13.5% in Q3 2020.

Despite the rise in vacancy levels in southern markets, Bengaluru, Chennai and Pune continued to hover in single digits, with NCR having the highest vacancy level at 28%.