MONEY

The incredible rise of Gurgaon’s commercial real estate

Boom town.
Boom town.
Image: AP Photo/Gurinder Osan
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Stoked by swiftly expanding startups and multinational corporations, Gurgaon is fast emerging as the rising star of India’s commercial real estate market, but the old guard in New Delhi and Mumbai’s central business districts (CBD) is still holding strong.

In the last year, commercial rental prices in Gurgaon’s MG Road shot up by a staggering 30%—the highest in the country—according to real estate consultants Colliers International. During the same period, prices in Gurgaon’s DLF Cyber City and the institutional sectors also went up by 22% and 24%, respectively.

“Major corporates like Snapdeal, NTT Data, Zomato, Arvato, BCG Group, SAP together took around 1.17 million sq.ft which is about 66% of the total office absorption,” Colliers said in its report about Gurgaon. And except for Delhi’s Nehru Place, no other commercial area in the national capital or Mumbai found itself among the areas with the highest change in rental prices. Meanwhile, four locations in Gurgaon were listed among the top ten locations where rental rates surged.

Once a nondescript village on the outskirts of New Delhi, Gurgaon emerged as a satellite city to the capital in the late 1970s when Maruti Suzuki, India’s largest carmaker, set up its factory a little away from the city. Since then, a number of multinational firms, including Google and Microsoft, have set up their offices in the suburb.

Gurgaon also saw a 60% jump in the absorption of office spaces during the April-June quarter in 2015—the third highest after Mumbai and New Delhi—compared to the January-March quarter this year. Absorption in real estate parlance refers to the total occupancy of commercial properties that are sold or leased. During the quarter, Mumbai saw absorption of 2.93 million sq.ft while Delhi’s absorption was at 0.21 million sq.ft.

But rental rates in many of these upcoming cities like Gurgaon are still very low compared to New Delhi or Mumbai, which continue to command sky-high rents. Delhi’s CBD, which comprises Connaught Place, and Mumbai’s CBD, which comprises Nariman Point, Fort and Ballard Estate, were among the most expensive office locations.

“The office market recorded approximately 19 million sq.ft of office absorption in the first half of the year across major cities in India,” the report said. “With an expanding economy and the introduction of the REIT (real estate infrastructure fund) regulation, the demand for office space is increasing and so is the demand from institutional investors to acquire income yielding office property.”