It’s Customer Time

  • Abhishek Behl
  • India
  • Dec 02, 2011

 Q What are the factors that you think are holding the commercial real estate market 

in Gurgaon?

Gurgaon currently has more than 30 million sq. ft of commercial real estate, under various stages of planning/development. The investment plans of most organisations, especially within the IT and manufacturing domain, are not that aggressive or robust, owing to the overall business environment.

A large part of the blame can be attributed to two factors

(a) Poor planning and execution ability, with some of the developers

(b) Liquidity crunch and lack of capital for commercial
real estate.

The above factors lead to delays in completion of projects, thereby attracting cost over-runs. The pricing strategy of commercial real estate hasn’t kept pace with the scientific methodology adopted in the residential sector.

Q There is a significant oversupply of commercial office space in Gurgaon? Is there any major correction in the offing?

In this current market scenario, the larger players are saddled with more inventory, and they are willing to be more competitive on the pricing aspect. This puts more pressure on the smaller developers, whose offtake of inventory necessarily loses the premium.

Most commercial projects in Gurgaon have no discernible differentiator (on product design, specs and quality), with the exceptions of a few. That takes away the attraction for prospective clients and tenants.

Q Tight money supply, and slowdown in the Europe and US, has led to fewer companies coming in to set base. What do you think will be the likely impact?

During the pre-2008 era, organisations would pro-actively identify spare capacity for forward expansion; which is a casualty in these uncertain times. Most organisations are taking up space on a need basis, and aren’t reserving space for expansion; with the knowledge also that the supply is adequate.

Also, the SME segment in Gurgaon hasn’t really had anything planned for them by the developers, who today aren’t planning beyond the next three months’ requirement. And, adequate inventory is available in the areas like Udyog Vihar, Sectors 30-31-32 etc. The buildings, though shorn of the glass facades and central amenities, are adequate for one segment of clients.

The “Eurozone” crisis is also not helping the cause of Gurgaon, and then there are another seven cities which are giving stiff competition to Gurgaon; not just with real estate supply,
but also with other soft benefits and incentives.

Q There is also a problem of structural vacancy, as many buildings in Gurgaon are vacant, and tenants are not expected soon. What do you think is
the solution?

Many of the commercial projects in Gurgaon, especially by the smaller developers, have been sold to financial investors in smaller space denominations. The developers have either sold further on a rental commitment (assured returns), or have altogether washed their hands off the project, except for the maintenance. This situation does not augur well for the owner, or the prospective tenant.

The rental expectations are based on the prevalent market price of the product. If the product has been sold on a higher price or on assured returns, the current rentals don’t support the expectations of the property owner.

Either the consumers have to be offered lower rentals, or, the landlords would have to be more innovative—by shouldering a part of the capital costs for the furnishings/finishing. They need to offer such benefits to the end user.

Certes research reveals that 65-68 per cent of the operating expense of a typical commercial office space occupier is towards power, amenities and operations. The acute power deficiency, coupled with the infrastrucutre related costs in Gurgaon, compared to some other competing cities, is not helping either.

Q Which areas do you think are most promising for investors, as far as commercial real estate is concerned?

The Delhi Master Plan MPD 2021, is also likely to bring in a large supply of land for commercial development. Coupled with the fact that Delhi contributes a substantial part of the work force in Gurgaon, the Delhi challenge cannot
be negated.

In the short run, the projects on the Northern Periphery Road (NPR) would see an offtake, subject to the work of the road over the next three years.  Most developers who have projects farther away from Gurgaon city have to either offer very competitive pricing, or, would have to add value to their products, to attract quality customers.

The recent labour and other administrative lapses, widely reported by the media, is
also not helping the cause of Gurgaon.



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