This sector was New Delhi’s largest office demand driver in Q1

It accounted for 31% of total rentals during the quarter.

Office space take-up in Delhi NCR kept pace with the leasing momentum during the last quarter with Q1 2021 recording gross leasing of 2.05 msf as economic activity resumed and occupiers executed their space strategies, according to Cushman & Wakefield. 

Despite the unprecedented disruption caused by COVID-19, the first quarter’s leasing was around 17% below the average leasing (2.5 msf) for the corresponding periods between 2017-19, excluding the exceptionally strong space take-up in Q1 2020. Term renewals constituted a 20.4% share of quarterly leasing in Q1, including cases where occupiers were evaluating decisions to stay or relocate. 

Here’s more from Cushman & Wakefield:

The core area of DLF Cyber City witnessed traction as upcoming supply in the micro-market saw healthy pre-commitment activity. Core Gurugram areas of Cyber City, MG Road, NH8 – Prime and Golf Course Road held a robust 39% share in the city’s overall leasing, signalling strong occupier confidence in these areas. Some occupiers vacated spaces or downsized during the quarter as part of their business continuity plans and ongoing remote work policies. Noida constituted a third of the quarter’s leasing led by Noida Expressway. 

Professional services segment was the largest demand driver in Q1 with a 31% share in leasing. Interestingly, captives held a 13% share in leasing as India continues to remain an attractive offshoring destination followed by Healthcare & Pharma with a strong 12% share in a trend that has not been observed in the city in the recent past. Net absorption during the quarter was 0.43 msf, largely due to occupier churn as well as a few exits / downsizing in the still evolving pandemic situation. 

Smaller and mid-sized coworking operators have not been able to sustain their business activities amidst the pandemic, which has compelled them to close or reduce centres. However, hybrid working in the long-run along with hub-and-spoke models due to de-densification strategies will be key demand drivers for managed workspaces for the larger operators, especially demand from large enterprises. With demand already firming up, some of the reputed developers are also planning to expand their footprint of flexible / managed workspaces to complement the conventional spaces offered by them. 

Noida Expressway leads strong supply addition in Q1; overall vacancy levels increase 

Similar to the last quarter, Q1 also recorded robust supply addition of close to 2.6 msf with Noida Expressway constituting a major shar e of 68.4% of this addition. Golf Course Extension Road and MG Road in Gurugram were the other micro-markets that saw new completions. However, a large part of these projects were unoccupied which contributed to the 126 basis points quarterly increase in Delhi NCR’s vacancy which stood at 26.4%. The flexibility in deal structuring to accommodate occupiers by offering higher rent-free period subject to lock-in commitments and CAM waivers is coming to an end as developers do not have room for more such waivers. The stabilizing demand with occupiers executing lease decisions can be attributed to effective rents gradually moving to pre-COVID levels. However, there is a slight flexibility in rents and deal structuring in some cases especially with investor-owned inventory in strata-sold projects with high unoccupied spaces. 

Robust supply pipeline for Grade A projects in Delhi NCR 

Despite COVID-induced disruption leading to rescheduling of timelines of several upcoming projects, construction activity in most of the key corridors in Noida and Gurugram has resumed. Delhi NCR is likely to see new supply addition of around 4 – 4.2 msf in the year ahead with half of this being added in the Noida Expressway corridor. Golf Course Extension Road, NH8 - Prime and Sohna Road will be the key micro-markets in Gurugram to record completion of new supply in 2021. Professional services and engineering and manufacturing segments are expected to be key demand drivers for office space in the city.