When you think about the most expensive offices space rentals in Delhi and Gurgaon, areas like Connaught Place and MG road with their reputation as city centers come to mind. However, there are two stark examples that stand out both in Gurgaon and Delhi, namely, Horizon center on Golf course road in GGN and Aerocity in Delhi. Both these location are fairly off of the city center and yet have managed to beat rentals of many buildings in Connaught Place and MG road (their respective CBD locations)

Asking rentals for Aerocity in Delhi is now up to 250/sq ft per month, from around 150-175 last year. Similarly, Horizon center on Golf course road, GGN is now asks for a screeching 195/sq ft.

For yield-seeking real estate investors, this opportunity looks very attractive, here are two main reasons why we feel that what meets the eye is quite sustainable over the medium to long term and not merely a bubble.

Inventory Shortage

Most important reason for this trend in Delhi is the fact that, there has been a gross inadequacy of grade A office space. For a fast developing city of 25 million people, all Delhi had to offer in the name of office space till late 1990s was a handful of district centres like Bhikaji cama, Nehru Place, Connaught Place etc which cumulatively had approx. 5-6 million sq ft office space. Most of these district centre’s were built in early 1970’s and were much past their glory days, also had began to lose charm for millennials.  Because, most of these buildings are lease hold, there is not much one can do about renovation and rejunuvating these buildings individually. A few commercial districts like Jasola and Saket did come about in late 1990’s however, even these lacked the foresight and scale from a quality development point of view to be able to catch up with the demand for grade A office space.  Even though there is currently up to 4 millon sq. ft. (3 million in Narouji Nagar and 1 million across Delhi in sporadic locations) of office space to be completed over the next 3-4 years, it still may not be enough for the city. Over 2 million sq ft office space was lapped up by companies in less than 1 year at Aerocity, it’s safe to speculate that there is room for more quality space to be added to Delhi skyline, given the fact that old buildings will continue to be less and less attractive for tenants with time. Unless, the government comes with a comprehensive policy to revive old district centres, which is looks very difficult task to carry out and a remote possibility,  newer spaces with international quality will thrive.

Amenities in Office buildings:

Barring a few, most developers and builders in north India have a bad reputation for shoddy work and overall poor maintenance after delivery of the project.  While, unlike main Delhi, there is enough office space development in Gurgaon, most of it was conceived and delivered with vanilla amenities like central air conditioning, power back up, security, elevators etc to just make quick money by developers during the early 2000 real estate boom without giving any thought for the end user of future. So, while most of the office space buildings are able to fill up vacant spaces fairly quickly, their rentals are depreciating as more and more supply comes about next door to them.

Gone are the days when companies settled for bare-bones office buildings with basic amenities, today smart companies are targeting new talent and an office with extra amenities like , pollution free air quality, auditorium, board room, food and drink options can prove to be a good bait.  Hines horizon center, comes as a big relief in this dearth for international companies that are seeking quality space with real estate in the so called millennium city Gurgaon. Even though Horizon Center is fairly off of the city center areas like Cybercity and MG road, now lot of these international firms have woken up to the fact that it offers a lot of what they are used to in the West — big contiguous floor plates, quick travel time across floor, energy efficient HVAC system to reduce operating cost, trendy bars and coffee shops, but also offer much clean air inside the office by installing air filtration system. Installation of air filtration system is something quite basic and very important in a polluted city like Delhi but none of the developers cared to harness it so far and even now many don’t seem to be in a hurry to retro fit one in their buildings as most buildings are capitalized by developers. A 100% occupancy at horizon center within 1 year is clear sign that bells and whistles like clean air, cool restaurants, trendy retail area, and enough high speed elevators for quick mobility are going to be extremely factors to drive rentals up going forward. Going by how scarce office buildings with great amenities are in Delhi NCR, location, location, location is passe may not be an overstatement in the current situation.

At the first glance it does look like the rentals are soaring because of a dearth of quality space however the hall mark of a good office building is relevance. The best office buildings are those which remain relevant over the long-term and have appeal to attract future generations. Horizon center and developments at Aerocity are a good example of the same. The already burgeoning Delhi NCR area is set to benefit from India’s strong growth projections as global investors like blackstone scramble to place their bets on the growth story.  Both locations at the current time are delivering a rental yield of over 9.5% and are only going to maintain or better it going forward.

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