Google Devouring Office Space in Gurgaon- Micro Market Impact

Its been over 12 years since Google opened its first office in Gurgaon, since then it has been doing an incremental growth every couple of years, however in the last 4 years this tech giant has really pushed the envelope to another level.  The first big swing was in early 2015 when they lease 450,000 sq ft office space across 8 floors of Unitech Signature Tower and now this year they have closed on a 700000 sq ft deal at next door Vatika One on One, plus another approx 450,000 sq ft on southern periphery road in TATA’s TRIL center.  If market grapevine is to be believed Google might look at acquiring another 2 million sq ft office space.  If this happens, Gurgram will be the single biggest city outside of US for Google in terms of space acquisition. Google as a company, without a doubt, is as best as it can get, and its willing to make huge investments in their future and the future of Gurgaon, speaks volumes, the deals they are making are going to set the tone for real estate activity going forward.

TRIL center Gurgaon

TATA TRIL center on Southern Periphery road, Gurgaon.

Branding value of symbolism – Gurgaon has long been known as the IT city/millennium city and the big strides of google further establish it beyond any doubt.  When digitalization is taking over our lives at such a huge pace, this move will only boost confidence of other tech companies as well as other industries who are chalking out strategy for expansion and seeking towns with enough educated workforce and a relatively decent cost of living. Being close to the capital of India, Gurgaon also helps large corporations like Google for lobbying purpose. We can easily envision, google being of the highest revenue earner for state and eventually they might also have some impact on state policy making.  Another interesting aspect is the supremacy of Gurgaon in real estate landscape over its peers in Delhi and NCR region is still intact, with all the clamor around the Jhewar Airport, expressway etc, Noida and Greater Noida is sort of gaining momentum lately, and obviously, google could have easily chosen Noida and easily cut real estate cost in half, but the fact that they made this massive decision which will have implications over many years for company, does reflect on the value Gurgaon brings to companies.

Caution and Opportunity for Potential Small Buyers/Tenants: Market will soon be rife with 10-12% assured return options nearby from some xyz Ponzi developer, stay away! Especially, after the equity markets going bust, assured rental deals do tend to catch eye balls. So far as rented deals are concerned, small investor should best avoid buying into google rented area, we feel the space is rented at around 20% higher rental than what the micro market commands, given a reputed tenant like google. This reputation was not exploited to strike a sweeter deal for tenant, instead, it’s tilted in favor of the landlord and therefore any deal less than around 8-9% is not a sound deal. Anyway, inflated deals are best avoided for various reasons. However, do watch out for smaller lockable vacant or rented spaces between 2000-6000 sq ft sizes in nearby office space buildings with latest state of the art amenities. They have a good chance of attracting niche tenants and also may be a potential consolidation candidate for a big investor acquisition or an existing tenant looking to expand. For risk takers, a high risk high reward opportunity could be in high street retail shops, between 500 sq ft to 2000 sq ft size with good visibility in nearby sectors around the southern periphery road, NH 8 and northern periphery road. A well throughout investment in retail has huge potential for investors as well as long term end users.

For Landlords: The pace at which Google is absorbing space will likely have significant effect on Gurgaon’s overall vacancy rate, they concluded the Signature tower deal at Rs 125/sq ft in 2015 and now  @ Rs 115/sq ft in Vatika. While the Vatika deal looks like it’s a comparatively sweeter deal for google, however, 115/sq ft is still significantly higher rent given the fact that the business complex does not have a direct connectivity to metro line and also considering the fact that its still in development stage. Having said that, facts are facts, this should definitely increase landlord confidence and will put upward pressure on rental in the NH 8 micro market. Landlords stuck in nearby office space projects like Signature 1, DLF star tower, BPTP centra, Dlf corporate greens etc should ideally see this as an opportunity to take exit at a decent 6-7%, an ROI which seem quite difficult only months ago.

While the full impact of how Google is likely to affect real estate and other peripherals of life is perhaps more than a decade away, as the company touches our lives directly or indirectly many different ways, the opportunities for landlords, small businesses and residential real estate have already begun. The NH 8 and southern peripheral road areas are now very attractive destinations for people looking for rental apartments, small retail businesses, particularly tech firms, to have their offices.

Under development Site of Vatika One on One Commercial Project
Under development Site of Vatika One on One Commercial Project, delivery likely by 3-4th quarter
Signature Tower 2 on NH 8, Gurgaon
Signature Tower 2 on NH 8, Gurgaon, google signed up for around 4 Lakh sq ft office space in late 2014
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