Oversupply of office space leads to high vacancy levels in Noida

Oversupply of office space leads to high vacancy levels in Noida
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First Published: Mon, May 21 2007. 01 48 AM IST

To let: Unlike Noida, where rentals for commercial space are stagnant, rents for office space in Gurgaon, another Delhi suburb, are expected to witness a 25-30% increase during the year.
To let: Unlike Noida, where rentals for commercial space are stagnant, rents for office space in Gurgaon, another Delhi suburb, are expected to witness a 25-30% increase during the year.
Updated: Mon, May 21 2007. 01 48 AM IST
New Delhi: Commercial space in Delhi’s suburb of Noida isn’t filling up as fast as it did previously, bucking the trend in the National Capital Region. According to a report by a real-estate consultant, rampant building has created an oversupply in the market.
For the first time since 2004, Noida has recorded a high vacancy level of 26.2% for its Grade A commercial buildings, or top-end office space, in the first quarter of 2007. This is a sharp jump from the vacancy level of 6% in the fourth quarter of 2006, which is pretty much fully occupied in real-estate terms.
The high vacancy levels are mostly because large amounts of supply of office space is being added to the existing stock, according to real-estate consultant Jones Lang LaSalle. During the first quarter of 2007, around 1.2mn sq. ft of space was added to the existing supply of 2.86mn sq. ft in Noida.
“In the first quarter of 2007 (alone), four commercial buildings were added to Noida,” said Abhishek Gupta, senior manager, research, Jones Lang LaSalle.
To let: Unlike Noida, where rentals for commercial space are stagnant, rents for office space in Gurgaon, another Delhi suburb, are expected to witness a 25-30% increase during the year.
Some real-estate developers are also withholding space as they prefer to lease the development to a single tenant rather than multiple tenants. “They want to lease to one large company rather than to many small companies,” Gupta, said. “This has not gone down well.”
Meanwhile, some potential tenants say they are still facing trouble finding the right space, even though vacancy rates have increased. “It could be true that developers are not leasing out space to multiple tenants,” said Asim Gandhi, chief operating officer, Parsvanath Developers Ltd. “We have been trying to find office space for our internal expansion in Noida. But we are not able to find one. Our personal experience is that there is a shortage in the supply of office space.”
As a result, Noida also did not see any change in the rental value from the previous quarter. The rental values remained static at Rs45 per sq. ft per month.
By contrast, Gurgaon, which is much larger than Noida, recorded very low vacancy levels of 1.47%. The demand in Gurgaon continues to be driven by the expansion plans of existing tenants and is expected to remain strong over the next six months, the Jones Lang LaSalle report said.
It is more or less the same in Delhi, where the vacancy levels for Grade A commercial property were very low, mostly because of the limited supply, made worse by a municipal drive last year to clear the city of unauthorized offices in residential areas.
Grade A commercial property in Delhi’s central business district continued to be fully occupied for the fourth consecutive quarter.
Even Grade B buildings in the district recorded low vacancy levels of about 3% during the quarter.
The secondary business district, outside central Delhi, recorded a marginal decline in the vacancy level from 4.9% in the fourth quarter of 2006 to 4.2% in the first quarter of 2007. The weighted average gross rental value in both the districts increased by 13%, compared with the previous quarter.
Rental values in places such as Gurgaon are expected to increase by 25-30% during the year, a slower increase from the 75-80% increase witnessed last year. “A 75% increase in rental value is not likely to happen now because of the low base effect and an expected robust supply,” Gupta said. “But even a 25% increase is good when you compare it to global rates.”
Rentals last year moved from Rs55-65 per sq. ft per month to Rs100-110 per sq. ft per month for buildings not used by IT companies. Buildings used by IT companies tend to be single company-occupied.
To get the same level of increase as seen previously, the rents will have to rise to as high as Rs200-220 per sq. ft per month, Gupta said.
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First Published: Mon, May 21 2007. 01 48 AM IST
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